April 14 (Bloomberg) -- The dollar rose to a one-week high against the euro after the Group of Seven said it's concerned that ``sharp fluctuations'' in currency markets may hurt the global economy.

The G-7 changed its statement on currencies for the first time in four years after the meeting in Washington on April 11, pledging to ``monitor exchange markets closely, and cooperate as appropriate.'' The yen advanced against the euro as a drop in Asian and European stocks caused investors to cut holdings of higher-yielding assets funded by loans in Japan.

``There was a ramping up of rhetoric from the G-7 on foreign-exchange volatility,'' said Jeremy Stretch, a currency strategist in London at Rabobank, the third-largest Dutch bank. ``It provided a good reason to pare dollar shorts.'' Short positions are bets a security or currency will fall.

The dollar climbed to $1.5775 per euro at 10:24 a.m. in London, from $1.5808 late in New York on April 11. It traded as high as $1.56, the strongest level since April 3. The U.S. currency was at 101.05 yen from 100.95 yen. The yen gained to 159.42 per euro from 159.55. The U.S. currency may fall to $1.59 this week, Stretch said.

The dollar dropped more than 12 percent on a trade-weighted basis in the past year as the Federal Reserve lowered borrowing costs to shore up the economy amid the fallout from the collapse of the subprime-mortgage market. Companies such as Fiat SpA and European Aeronautic Defence & Space Co. have complained that the declines have hurt exports.

Change in Statement

The Australian dollar, a favorite for so-called carry trades, fell 0.6 percent to 92.25 U.S. cents today and dropped 0.5 percent to 93.21 yen. The New Zealand dollar declined 0.4 percent to 79 U.S. cents and 0.5 percent to 79.67 yen. The Nikkei 225 Stock Average fell 3.1 percent, its biggest decline since March 17. Europe's benchmark Dow Jones Stoxx 600 Index declined a fifth consecutive day.

The change in the G-7 statement was the most significant since the Boca Raton, Florida, meeting in February 2004, when officials cautioned against ``excess volatility.'' The latest statement didn't explicitly mention the dollar or suggest plans for intervention, in which central banks arrange purchases or sales of foreign exchange.

The euro pared its decline against the dollar after European Central Bank council member Yves Mersch said the bank can't afford to cut its 4 percent benchmark rate this year with inflation likely to breach its 2 percent limit in 2009.

``The ECB is biased toward concern about inflation rather than the economy,'' said Niels Christensen, a currency strategist in Copenhagen at Nordea Bank AB, the biggest Scandinavian bank by market value. ``That supports the euro as there is no reason to expect a rate cut.''

`Sharp Fluctuations'

``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7 statement said. ``We continue to monitor exchange markets closely, and cooperate as appropriate.''

French Finance Minister Christine Lagarde said in an interview with Bloomberg Television that she hopes the ``concerted wording'' will temper the dollar's decline.

``The markets tend to take the view that the U.S. wants to see the weakening of the dollar,'' Makoto Utsumi, a former top currency official at the Finance Ministry and now president of Japan Credit Rating Agency Ltd. in Tokyo, said in an interview with Bloomberg Television. ``This was denied in a clear-cut way. The G-7 clearly shared concern.''

Dollar Index

The dollar wasn't ``mentioned specifically,'' suggesting U.S. policy makers still favor a weak dollar to spur the economy, Ashley Davies, a currency strategist in Singapore at UBS AG, the world's second-biggest currency trader, wrote in a report today. Support for the dollar will be limited because the focus was ``on volatility, not levels,'' Tomoko Fujii, a currency strategist in Tokyo at Bank of America Corp., the sixth-largest, wrote in separate research.

The Dollar Index rose 0.2 percent today to 71.982. The measure of the currency against six of its main counterparts has tumbled 6.2 percent this year on concern that credit-market losses will push the U.S. economy into a recession. It fell to an all-time low of 70.698 on March 17.

``Traders will be more reluctant to push the dollar lower, even if there are factors that suggest it should fall,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's second-largest bank by assets. The dollar may rise to 102.20 yen and $1.56 per euro today, he said.

Carry Trades

The last time the G-7, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The euro initially rose 4 percent, only to end that year 13.8 percent lower. The G-7 last propped up the dollar in 1995, when it sank to a post-World War II low of 79.75 yen. The U.S. currency rose 4 percent against the yen that year.

In carry trades, speculators get funds in a country with low borrowing costs and invest in one with higher returns, earning the spread between the two. The risk is currency fluctuations erase profits between the two rates. Japan's interest rate of 0.5 percent compares with 7.25 percent in Australia and 8.25 percent in New Zealand.

The dollar's gains may be limited before a Commerce Department report today that may show retail sales in the U.S. stagnated in March, according to the median estimate of economists surveyed by Bloomberg News.

Futures show traders see a 46 percent chance that the Fed will cut its benchmark rate by 50 basis points to 1.75 percent at the next meeting on April 30, compared with zero chance a month ago. The odds for a cut to 2 percent at the meeting fell to 54 percent, from 74 percent a month ago.

The Philippine peso fell 0.4 percent to 41.75 per dollar and the Indonesian rupiah dropped 0.1 percent to 9,198 against the U.S. currency as record prices for rice, wheat, milk and cooking oil fuel inflation. Investors from Deutsche Asset Management to Fortis Investments are trimming bondholdings in the region.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

Last Updated: April 14, 2008 05:35 EDT