June 13 (Bloomberg) -- The dollar traded near a one-week high against the euro as U.S. retail sales advanced last month twice as much as economists forecast, raising speculation the Federal Reserve will increase borrowing costs this year.

An index gauging the dollar versus the currencies of six U.S. trading partners rose yesterday to the highest since February. The dollar rose 2.3 percent versus the euro this week as Fed Chairman Ben S. Bernanke said the risk of a deeper slowdown is receding. The U.S. currency may extend its gain before a report forecast to show inflation accelerated in May.

``What we have seen sustains the move in the dollar over the last few days,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``It supports the view that U.S. rates are going up in the not-so-distant future.''

The dollar traded at $1.5433 per euro at 6 a.m. in Tokyo, after increasing 0.8 percent yesterday and touching $1.5380, the highest level since June 5. The U.S. currency was at 107.95 yen, after rising 0.9 percent. The euro traded at 166.60 yen.

South Africa's rand weakened 1.6 percent to 8.1392 against the dollar yesterday as the central bank raised its target lending rate by a half-percentage point to 12 percent, less than the 1 percent increase forecast by 18 of 26 economists surveyed by Bloomberg News. The rand has fallen 7 percent versus the dollar since May 30.

U.S. Retail

U.S. retail sales increased 1 percent in May as Americans used their tax rebates to shop, the Commerce Department reported yesterday. That gain followed a revised 0.4 percent advance the prior month. The median forecast of 82 economists surveyed by Bloomberg News was for a 0.5 percent increase.

``The consumer refuses to die,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``That's helpful for the dollar.''

Consumer prices in the U.S. rose 0.5 percent last month after a 0.2 percent increase in April, according to the median forecast of 84 economists surveyed by Bloomberg News. The Labor Department is scheduled to release its report at 8:30 a.m. in Washington.

Fed funds futures on the Chicago Board of Trade showed yesterday a 65 percent chance the central bank will increase the target lending rate by at least a quarter-percentage point at its August meeting, compared with 7 percent odds a week ago.

The economic outlook has improved from a month ago, and central bankers will combat any increase in inflation expectations, Bernanke said June 9.

Bernanke on Economy

``The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,'' he said. ``The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.''

The Fed has lowered its benchmark rate to 2 percent from 5.25 percent since September to prevent widening subprime losses from stalling economic growth. The European Central Bank has kept its main refinancing rate at a six-year high of 4 percent since last June.

The U.S. currency was supported by speculation that finance ministers from the Group of Eight countries might make comments discouraging the dollar's decline at two days of meetings in Osaka, Japan, this weekend.

G-8 officials will urge emerging nations to stop subsidizing oil consumption and press regulators, notably in the U.S., to look into the trading that has driven crude oil to a record, French Finance Minister Christine Lagarde said in an interview on RTL radio yesterday. The G-8 comprises the U.S., Japan, Germany, the U.K., France, Italy, Canada and Russia.

ECB Stance

The 15-nation European currency rose last week the most against the dollar since March after ECB President Jean-Claude Trichet said policy makers may increase the main refinancing rate by a quarter-percentage point in July to curb inflation.

ECB Executive Board member Lorenzo Bini Smaghi told reporters yesterday in Milan that policy makers ``only sent indications for July, not beyond.'' His comment was similar to that of ECB executive board member Juergen Stark on June 10. Pricing of Euribor December futures indicates traders are betting the bank will raise rates at least two times by then.

To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net

Last Updated: June 12, 2008 17:01 EDT