July 25 (Bloomberg) -- Kuwait revalued the dinar against the dollar for a second time this month to curb inflation, fueling speculation other Gulf countries will follow suit.

The central bank, which manages the dinar against a basket of currencies, lifted its currency 1.7 percent. The dinar has been dragged lower by a slump in the dollar, increasing the cost of imports to Kuwait and accelerating gains in consumer prices. The United Arab Emirates' dirham strengthened the most in almost four months today and the Saudi riyal also advanced.

``Kuwait's repeated revaluations have clearly increased the likelihood of revaluation of other Gulf currencies,'' Koceilas Maames, a Middle East economist for Calyon in Paris, said in a note to clients today. The U.A.E. and Qatar, which have the region's highest inflation and euro imports, ``are the most likely candidates,'' the economist said.

The Central Bank of Kuwait is buying dollars at 0.28195 and selling at 0.28205, according to data posted on its Web site. The dinar was trading 1.6 percent higher at 0.28235 to the dollar, the highest since January 1992, at 4:14 p.m. local time, data compiled by Bloomberg show.

The U.A.E. dirham strengthened 0.03 percent against the dollar to 3.6716 as of 5:15 p.m. local time, its biggest gain since April 5. The Saudi riyal climbed 0.01 percent to 3.75.

The Kuwaiti central bank revalued the dinar 0.4 percent on July 12, and the currency appreciated by the same amount when the country abandoned a peg to the dollar on May 20.

Common Currency

The decision to end the peg undermined plans by six Gulf oil-producing states, including Saudi Arabia and Kuwait, to adopt a common regional currency by 2010.

The countries pegged their currencies to the dollar as part of the proposal. Oman said in December it couldn't meet the deadline and later withdrew from the project.

The U.A.E. won't alter its peg to the dollar unless Gulf neighbors follow suit, central bank Governor Nasser al-Suwaidi said June 24. Saudi Arabia has ``no plans to revalue,'' Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said May 15, before Kuwait dropped the dinar's peg.

Qatar, owner of the world's largest natural gas field, said inflation accelerated to 14.8 percent in the first quarter from 11.8 percent in the last three months of 2006. It has no plans to revalue the riyal, the Gulf Times reported in May, citing central bank Governor Sheikh Abdullah bin Saud al-Thani.

Faster Inflation

Inflation in Kuwait accelerated to 5.1 percent in March from a year earlier, compared with 3.9 percent in January, as costs of transportation and imported consumer goods increased.

The ``first two revaluations looked modest and this third takes us to a 2.5 percent strengthening since May, which is where I'd expect the dinar to be,'' said Simon Williams, an economist at HSBC Holdings Plc in Dubai. ``Much depends on what now happens with the dollar, but this is probably the end of revaluations for now.''

Kuwait will keep its dinar linked to a basket of currencies including the dollar, euro, pound and yen until the single currency comes into use, according to the central bank. The basket may be 70 percent in dollars, 20 percent in euros, and 5 percent each in the pound and yen, Standard Chartered Plc says. Kuwait hasn't disclosed the basket's composition.

Even though inflation in the U.A.E. accelerated to 9.3 percent in 2006, its fastest pace for more than 25 years, Kuwait's revaluation won't necessarily mean the federation's central bank will follow suit, said Steve Brice, chief economist in Dubai at Standard Chartered.

``The drivers of inflation in the two countries are very different, though certainly Kuwait's move will increase speculation that something's going to happen,'' Brice said.

The dollar has declined this month against all 10 most actively traded currencies, and yesterday fell to a record against the euro and 26-year low versus the pound, on concern a slump in the subprime mortgage market will hurt the economy.

To contact the reporters on this story: Will McSheehy in Dubai, U.A.E. at wmcsheehy@bloomberg.netArif Sharif in Dubai at asharif2@bloomberg.net

Last Updated: July 25, 2007 10:08 EDT