Nov. 29 (Bloomberg) -- The dollar rose against the euro and the yen after a bigger-than-expected jump in U.S. consumer confidence damped speculation the Federal Reserve may be nearing the end of its interest-rate increases.

The surge in sentiment suggests the central bank will continue to raise its benchmark rate at a ``measured'' pace. The highest Fed rate in four years is propelling the dollar toward its first annual gain since 2001 versus the euro and the yen. Futures traders increased bets after the consumer confidence report that policy makers will lift rates three more times.

``These numbers tell you that the economy is humming right along through the holiday season,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products Corp. in Wilton, Connecticut. ``There will be no reason for the Fed to stop hiking interest rates, which is very supportive of the U.S. economy and the dollar.''

Against the euro, the dollar climbed to $1.1779 by 5 p.m. in New York, from $1.1850 late yesterday, according to electronic foreign-exchange dealing system EBS. The dollar advanced to 119.69 against the yen, from 118.84.

The Conference Board's consumer confidence index jumped to 98.9 from a revised 85.2 in October, the biggest gain in more than two years, the New York-based research group said. Economists expected an increase to 90.2, based on the median forecast in a Bloomberg survey.

U.S. new home sales unexpectedly rose 13 percent, the biggest increase since April 1993, to a record 1.424 million annual rate from a September's 1.26 million pace, the Commerce Department said in Washington. Economists forecast sales to decline to a 1.2 million rate.

`Fed Can't Stop'

``The Fed can't stop increasing rates in this environment,'' said Naeem Wahid, a currency strategist at HBOS Plc in London. ``As long as the economy keeps surprising and the data is still strong, support for the dollar will be there.''

The Fed has raised its benchmark 12 times since June 2004, to 4 percent from 1 percent, helping the dollar gain more than 15 percent against the euro and the yen this year. The European Central Bank has left its rate at 2 percent since 2003, and the Bank of Japan has kept rates near zero percent since 2001.

The dollar remained higher earlier after the Commerce Department said orders for goods made to last at least several years rose 3.4 percent in October after declining 2 percent the month prior. The orders were expected to rise 1.5 percent, according to a median estimate of 63 economists surveyed by Bloomberg News.

U.S. Jobs

The Labor Department on Dec. 2 will probably say the U.S. economy created 215,000 jobs in November, compared with October's 56,000, according to a Bloomberg survey. The unemployment rate likely held at 5 percent for a second month, close to the four-year low of 4.9 percent reached in August.

The dollar fell the most in more than seven weeks against the euro yesterday after reports showed existing home sales in the U.S. fell more than analysts forecast and sales gains on the Thanksgiving weekend were driven by discounters such as Wal-Mart Stores Inc.

The U.S. currency began erasing the loss from yesterday earlier in Asian trading after a Japanese government report on factory production suggested the economy isn't growing fast enough to justify higher interest rates.

Industrial production in Japan rose 0.6 percent in October, compared with a 0.4 percent gain the previous month. Output was expected to increase 1.3 percent, according to the median forecast of economists surveyed by Bloomberg.

`Knee-Jerk'

``The market's knee-jerk reaction is to put more focus on the industrial production report,'' said Sean Callow, a currency strategist in Singapore at Westpac banking Corp. ``Today's move is a bit of opportunistic buying of the dollar after yesterday's decline.''

The dollar also saw support after Market News reported that the ECB will probably limit interest rate increases next year to a further 50 basis points, or 0.5 percentage point, citing unnamed ECB officials.

European policy makers regard a level of between $1.17 and $1.20 against the dollar as appropriate for the euro given the relative performance of the two economies, Market News said.

The ECB on Dec. 1 is expected to raise its benchmark rate for the first time in five years. The Organization for Economic Cooperation and Development said in a report today that the Fed should keep raising interest rates and urged central banks in Europe and Japan to keep borrowing costs low to foster economic growth.

Futures Bets

Futures traders boosted bets the Fed will lift its benchmark to 4.75 percent by April. The yield on federal fund futures for April delivery rose 5 basis points at the Chicago Board of Trade to 4.64 percent. The jump signals traders see a 56 percent chance of an increase to 4.75 percent rate by April, up from 36 percent yesterday. A basis point is 0.01 percentage point.

Futures contracts show traders have fully priced in the Fed increasing its benchmark to 4.25 percent at its next meeting on Dec. 13. The odds of an increase to 4.5 percent at the following meeting on Jan. 31 are about 80 percent.

``We're getting a bit of a retracement of yesterday's dollar sell-off,'' said Greg Anderson, a foreign-exchange strategist at ABN Amro Bank NV in Chicago. ``Part of it is the expectation that speculators will take one more run at the best trade right now, and the best trade this year has been buying dollars against Europe and Asia.''

The U.S. currency is headed for its biggest monthly advance in five against the euro and the largest gain in six months against Japan's currency.

To contact the reporter on this story: Michael McDonald in New York at mmcdonald10@bloomberg.net; Deborah Finestone in New York dfinestone@bloomberg.net

Last Updated: November 29, 2005 17:09 EST