Dec. 14 (Bloomberg) -- The Australian dollar fell as investors sold higher-yielding assets on concern that credit- market losses will slow global economic growth.

The currency declined for a third day as the rate Australian banks charge each other for loans rose to the highest in more than a decade, suggesting the cash injection by central banks won't be enough to revive lending. Credit-market turmoil has hurt the Australian dollar as investors became less inclined to buy the nation's stocks and bonds with money borrowed from Japan in so-called carry trades.

``There will be visible signs that financial market stresses will have real economic impact, so this will weigh on'' Australia's dollar, said David Mozina, senior currency strategist in New York at Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm. ``We're negative on the Australian dollar at these sort of levels medium term.''

The Australian dollar declined to 87.77 U.S. cents as of 6 p.m. in Sydney, from 88.03 cents in late Asian trading yesterday. It traded at 87.80 a week ago in New York.

Caltex Australia Ltd., the nation's biggest oil refiner, cut its full-year profit forecast by as much as 13 percent because of a decline in the Australian dollar. The currency has slid 6.6 percent since touching a 23-year high of 94 cents on Nov. 8.

Central banks in the U.S., U.K., Canada, Switzerland and the euro region agreed on Dec. 12 to a coordinated effort to promote lending and restore confidence in money markets. Policy makers are reacting to more than $66 billion of losses tied to U.S. subprime mortgage defaults from banks this year.

Carry Trades

Australia's three-month bank bill swap rate climbed 14 basis points to 7.51 percent, the highest since July 1996, according to data compiled by Bloomberg. The rate, which banks use to determine yields on variable-rate loans, has increased from 7.09 percent a month ago.

Australia's currency is a favorite of carry trades because the nation's overnight cash rate target is at an 11-year high of 6.75 percent compared with Japan's 0.5 percent benchmark rate.

In carry trades, investors get funds in a country with low borrowing costs and buy assets where interest rates are higher, earning the difference between the two. The risk is that exchange-rate swings erode profits.

``The carry trade will be quiet for the next one or two weeks,'' said Peter Pontikis, treasury strategist at Suncorp- Metway Ltd. in Brisbane. ``I'd expect a two or three cent decline in'' the Australian dollar by the New Year.

Metals Decline

Australia's dollar also weakened on speculation inflation in the U.S. will limit the Fed's scope to reduce interest rates further and keep the economy out of recession. The U.S. is Australia's third-biggest export market.

The London Metal Exchange Index, which measures the prices of six metals, fell 2.5 percent. Australia's dollar is typically influenced by raw materials prices because the revenue they generate accounts for about 17 percent of Australia's economy.

Australia's dollar has risen 2.7 percent against the U.S. currency since Sept. 18 when the Fed first cut its target overnight lending rate between banks to free up capital as banks became reluctant to lend. The Fed lowered the rate a quarter- percentage point to 4.25 percent on Dec. 11, the third reduction this year.

Australia's dollar fell after the U.S. Commerce Department reported retail sales rose 1.2 percent in November, twice as much as economists expected. The Labor Department said prices paid to U.S. producers climbed the most in 34 years. A U.S. government report today may show consumer price increases accelerated last month, according to a Bloomberg News survey.

``The U.S. dollar has had broad-based strength so the Aussie has been caught up in that,'' Lehman's Mozina said, referring to the currency by its nickname. ``It's a very testing environment for the currency that is likely to unfold over the next three to four months.''

Australian government bonds fell for a second day. The yield on the two-year note rose 4 basis points, or 0.04 percentage point, to 6.79 percent. The price of the 7.5 percent security maturing in September 2009 fell 0.069, or A$0.69 per A$1,000 face amount, to 101.13.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.

Last Updated: December 14, 2007 02:04 EST