April 23 (Bloomberg) -- The euro traded within a cent of the record against the dollar after European Central Bank officials said they'll increase interest rates from a six-year high if inflation doesn't slow.

The 15-nation currency surpassed $1.60 yesterday as oil surged above $119 a barrel and Federal Reserve Bank of Dallas President Richard Fisher said inflation is starting to grip U.S. consumers. South Africa's rand appreciated against all of the major currencies on bets rising consumer prices will force the central bank to increase its target lending rate.

``There are a lot of structural reasons for the euro not to weaken for some time,'' said Andrew Busch, a global currency strategist in Chicago at BMO Capital Markets, a unit of Bank of Montreal. ``They are dying to raise interest rates.''

The euro traded at $1.5996 at 6:11 a.m. in Tokyo, after increasing 0.5 percent yesterday, when it touched $1.6019, the highest since Europe's currency debuted in 1999. The euro traded at 164.76 yen, following a 0.3 percent advance. The dollar traded at 102.99 yen, after a 0.2 percent drop.

The 15-nation currency strengthened against the dollar yesterday as ECB governing council member Christian Noyer said policy makers will act to restrain consumer prices if inflation doesn't slow.

``Our big problem is to make sure that inflation falls back below 2 percent next year,'' the Bank of France governor said in an interview on RTL radio. ``We'll do what it takes for that,'' he said, adding, ``If needed, we'll move rates.''

`Go Both Ways'

Noyer later told the Wall Street Journal that interest rate ``movements can go both ways.'' He said his earlier statements had been overinterpreted, according to the newspaper.

His colleague, Bank of Greece Governor Nicholas Garganas, said at a news conference in Athens that inflation will ``remain high'' in the coming months and isn't expected to fall at a ``rapid pace'' in the second half.

South Africa's rand rose against all of the major currencies yesterday on bets inflation will force the central bank to raise borrowing costs, increasing the currency's interest-rate advantage.

The Pretoria-based bank lifted its lending target for a fifth time in 10 months on April 10, increasing it a half- percentage point to a five-year high of 11.5 percent. The rand rose more than 2 percent versus the South Korean won and 1.9 percent against the Canadian dollar.

Norway's krone rose 0.8 percent to 4.9598 per dollar, close to the highest since 1980, and 0.3 percent to 7.9323 versus the euro before a meeting of the central bank today. The target lending rate will be increased by a quarter-percentage point to 5.5 percent, according to all but one of the 24 economists surveyed by Bloomberg News.

Euro's Advance

The euro has surged 1.2 percent in April and 9.5 percent this year against the dollar on speculation inflation will discourage the ECB from lowering its 4 percent main refinancing rate. A European Union report showed last week that annual inflation rose to a 16-year high of 3.6 percent in March.

``The market has started to price in the possibility of a rate hike from the ECB,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``Given the momentum of this trade, we will at least move up to $1.6350.''

Europe's currency may rise to $1.65 over the next week after breaching $1.60, said Greg Anderson, a foreign exchange strategist at ABN Amro Bank NV in Chicago, in a note to clients yesterday. Breaks of $1.30, $1.40 and $1.50 all led to increases of about 3 cents in about a week, Anderson said.

Three-Month Euribor

The implied yield of the three-month Euribor future for December rose 0.12 percentage point to 4.59 percent yesterday. It has risen 0.61 percentage point this month as traders priced in the likelihood of an interest rate increase. The ECB has held its target lending rate steady since June.

The U.S. central bank has lowered the fed funds target by 3 percentage points since September to 2.25 percent to prevent the economy from tipping into a recession. Futures on the Chicago Board of Trade show an 82 percent chance that the Fed will cut its benchmark by a quarter-percentage point on April 30. The balance of bets is for no reduction.

A decline in European bonds after Noyer's comments widened the yield advantage of two-year German government debt over Treasuries with similar maturities by 0.09 percentage point to 1.71 percentage points. The increased spread boosted the appeal of euro-denominated assets.

The Dallas Fed's Fisher said on April 21 in a Fox Business Network interview aired yesterday that inflation from rising food and energy prices has been so persistent that it's starting to affect consumers' expectations for future prices.

``I'm concerned that we might be on a path of higher inflation than we would otherwise have had,'' he said.

Fisher voted against interest-rate cuts at the Jan. 30 and March 18 meetings, and was joined in dissent by Philadelphia Fed President Charles Plosser at the March meeting

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.

Last Updated: April 22, 2008 17:15 EDT