April 1 (Bloomberg) -- The dollar rose the most against the euro in almost two weeks as UBS AG and Lehman Brothers Holdings Inc. said they're raising $19 billion, bolstering investor confidence in the world's largest financial institutions.

The currency, down 7 percent against the euro in 2008, increased 1.2 percent today, 2.3 percent versus the yen and 2.1 percent against the Swiss franc as some investors concluded credit market losses will diminish. The yen fell to the lowest in almost a month versus the euro as stock gains led traders to buy higher-yielding assets funded by cheap loans in Japan.

``The tables have turned,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``Lehman's news indicates progress has been made in addressing the U.S. problems.''

Against the euro, the dollar climbed to $1.5601 at 4:12 p.m. in New York, from $1.5788 yesterday. The dollar increased to 101.98 yen, from 99.69, after touching 102.16, the highest level since March 12. The yen weakened to 159.05 per euro, compared with 157.40 yesterday. It fell as low as 159.21 per euro, matching the level on March 5.

The yen fell against all of the major currencies after the Bank of Japan's Tankan survey showed business confidence fell to a four-year low, giving policy makers another reason to cut interest rates. The yen's decline accelerated as the Standard & Poor's 500 Index surged 3.6 percent.

The South Korean won was the best performer against the dollar among the major currencies, rising 1.2 percent, on speculation the central bank will allow faster currency gains to curb inflation, which was higher than forecast in March.

Australian Dollar

The Australian dollar fell 0.7 percent against its U.S. counterpart as the Reserve Bank of Australia left the target lending rate at 7.25 percent, citing ``moderation in demand growth that will take pressure off inflation.''

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, rose 1.1 percent to 72.563, the biggest gain since Dec. 14, as traders reduced bets the Federal Reserve will lower the target lending rate by a half-percentage point at the April 30 policy meeting. The index dropped to a record of 70.698 on March 17.

The U.S. currency posted its biggest loss in almost four years against the euro in the first quarter, falling 8.2 percent, as the Fed cut the benchmark lending rate by 2 percentage points to 2.25 percent to revive bank lending.

``The market focus has shifted,'' said Michael Malpede, a senior currency analyst in Chicago at Man Global Research, part of Man Group Plc, the world's largest publicly traded hedge-fund manager. ``We are going to see the dollar bounce further.''

Yen's Decline

The yen fell more than 3 percent against the South Korean won, South African rand and Brazilian real. The Swiss franc, another currency used to fund purchases of higher-yielding assets, dropped against most of the major currencies.

Japan's benchmark lending rate of 0.5 percent is the lowest in the industrialized world, while Switzerland has a 2.75 percent benchmark borrowing cost.

The Tankan headline index of confidence among large Japanese manufacturers dropped to 11 points in March, from 19 in December, a second quarterly decline, the Bank of Japan said today in Tokyo.

The U.S. currency rose to 1.0136 against the Swiss franc as Zurich-based UBS said it will write down $19 billion on debt securities, bringing the total to almost $38 billion since the third quarter of 2007. It will seek $15 billion in a rights offering to replenish capital.

Lehman Stock

The dollar strengthened against the euro as Lehman raised $4 billion from a stock sale, increasing the size of its offering to 4 million convertible preferred shares from 3 million announced yesterday.

``It's a sigh of relief for the dollar,'' said Fabian Eliasson, vice president of foreign-exchange sales at Mizuho Corporate Bank in New York. ``The Fed might not cut rates as aggressively as people thought.''

Fed funds futures on the Chicago Board of Trade show a 30 percent chance the U.S. central bank will reduce its 2.25 percent benchmark lending rate by a half-percentage point on April 30, compared with 52 percent odds yesterday. The rest of the bets are for a quarter-point reduction.

U.S. manufacturing contracted less than forecast in March, easing concern that less consumer spending and business investment will cause a deeper economic slump. The Institute for Supply Management's manufacturing index increased to 48.6 from 48.3 in February, the Tempe, Arizona-based group said today. Fifty is the dividing line between contraction and expansion. The median forecast of 71 economists surveyed by Bloomberg News was for a reading of 47.5.

Retail sales in Germany, adjusted for inflation and seasonal swings, fell 1.6 percent in February, the Federal Statistics Office said in Wiesbaden today. That's the biggest drop since May 2007.

The dollar will likely rise to $1.55 per euro and remain little changed near 100 yen by the end of June, according to the median estimate of 40 analysts surveyed by Bloomberg.

To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net.

Last Updated: April 1, 2008 16:15 EDT