March 10 (Bloomberg) -- The dollar weakened against the euro and approached an eight-year low versus the yen as traders bet the Federal Reserve will lower interest rates by at least 75 basis points to avert a recession.

The currency traded within a cent of a record low against the euro as futures indicated 96 percent odds the Fed will cut its benchmark rate to 2.25 percent on March 18, 175 basis points more than the Bank of Japan's and 175 basis points less than the European Central Bank's. The U.S. currency weakened against a basket of major trading partners to near the lowest since the index began in 1973.

``What's been driving the market is U.S. economic developments and expected interest-rate differentials,'' said Thanos Papasavvas, head of currency management at Investec Asset Management in London. ``This is a weak-dollar story. We would expect the Japanese yen and euro to continue appreciating.''

The dollar fell to 102.33 yen by 7:24 a.m. in New York, from 102.67 yen on March 7, when it slid to 101.43, the lowest since January 2000. It dropped to $1.5364 per euro, from $1.5355 at the end of last week, when it declined to $1.5459 a euro, the weakest level since the European single currency's debut in 1999.

The yen advanced 0.4 percent to 157.20 per euro as the Cabinet Office said Japan's equipment orders jumped 19.6 percent in January, the fastest pace in more than seven years.

The U.S. currency declined to $2.0197 against the pound, from $2.0134 on March 7, after a government report showed factory-gate in February inflation matched the fastest annual pace since 1991. The dollar also dropped 0.2 percent to 1.0233 against the Swiss franc and 0.5 percent to 5.1361 Norwegian krone.

`Downside Risks'

``It has been a storm of anti-dollar news and developments for the past several weeks,'' said Joe Trevisani, chief market analyst at FX Solutions LLC, a currency brokerage in Ridgewood, New Jersey. ``Statistics in the U.S. are either skirting recessionary levels or have tipped into contraction.''

Futures on the Chicago Board of Trade show traders see a 96 percent chance of a 75 basis-point interest-rate cut, with remaining odds on a larger reduction. The contracts showed no chance of the bigger move a week ago.

The currency also slid before a Commerce Department report on March 13 that economists surveyed by Bloomberg News forecast will show growth in spending at U.S. retailers slowed to 0.2 percent in February. A separate industry report the next day will probably show consumer confidence fell to a 16-year low.

Recession

The U.S. entered a recession in the first quarter, Deutsche Bank AG's New York-based equity strategist Binky Chadha wrote in a report dated yesterday. Royal Bank of Scotland Plc and JPMorgan Chase & Co., in separate notes, raised their forecasts for Fed interest-rate cuts next week to three-quarters of a percentage point as a shrinking labor market pushes the U.S. economy into a recession.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined for a ninth straight day, to 72.85. It was at a record low of 72.46 on March 7.

The synthetic euro, which estimates the European currency's value before its inception in 1999, advanced to the strongest level since at least January 1989, when Bloomberg's data on the measure began. The euro has strenghened 17 percent against the dollar in the past year. The U.S. currency has weakened 13 percent versus the yen.

Japanese authorities have sold the yen on all four occasions since 1995 when it has approached the 100 mark in a bid to support exporters from Toyota Motor Corp. to Sony Corp.

Watching Currencies

Finance Minister Fukushiro Nukaga and his top currency official Naoyuki Shinohara said today the ministry is ``carefully'' watching the foreign-exchange market, after the yen surged to an eight-year high against the dollar last week.

``When I intervened, the U.S. agreed to it,'' said Eisuke Sakakibara, dubbed ``Mr. Yen'' for his ability to influence the foreign exchange market as Japan's top currency official from 1997 to 1999. ``The U.S. now welcomes a gradual decline in the dollar.''

Sakakibara said there is a 50 percent probability that the U.S. is in recession.

UBS AG, the second-largest foreign-exchange trader, raised its one-month forecast for the yen to 102.50 per dollar and 160 per euro from previous estimates of 106 and 164.

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: March 10, 2008 07:26 EDT