March 28 (Bloomberg) -- The dollar headed for its biggest weekly decline in a month against the euro as traders raised bets the Federal Reserve will cut interest rates to avert a recession.

The currency was also poised to drop versus the British pound and the Swiss Franc before a U.S. government report today that will probably show growth in consumer spending slowed. The yen fell against the Australian and New Zealand dollars as gains in Asian stocks prompted traders to increase holdings of higher- yielding assets funded with loans from Japan.

``There are further declines ahead for the dollar,'' said Antje Praefcke, a Frankfurt-based currency strategist at Commerzbank AG, Germany's second-largest lender. ``The U.S. is probably facing a recession and the Fed will cut rates further. There are ongoing problems with the financial sector. All of this is not good news for the dollar.''

The dollar traded at $1.5812 per euro at 7:15 a.m. in New York, from $1.5779 yesterday and $1.5431 a week ago. The U.S. currency rose to 99.97 yen, from 99.65 yesterday and 99.58 at the end of last week. Japan's currency weakened to 158.10 per euro, from 157.21 yesterday and 153.55 on March 21.

The dollar, which dropped 2.4 percent this week, will trade in the $1.5750 to $1.58 range today before falling to a record $1.60 within the next two weeks, Praefcke predicted.

New Zealand's dollar advanced after a statistics bureau report showed the nation's economic growth in the fourth quarter accelerated at the fastest annual pace in three years. The currency rose to as high as 80.68 U.S. cents, before trading at 80.54 cents, from 80.35 cents. It also gained 0.6 percent to 80.56 yen. The Australian dollar strengthened 0.6 percent to 92.40 U.S. cents and 0.9 percent to 92.41 yen.

ECB Speakers

The euro rose for a sixth day against the yen, its longest stretch since Feb. 21, on speculation European Central Bank officials will today reiterate concern that price growth may increase. Inflation accelerated to 3.3 percent in February, boosted by record oil costs and higher food prices.

Five governors of Europe's central banks, including Austria's Klaus Liebscher, will meet in Prague, and ECB executive board member Juergen Stark will speak in Cape Town.

ECB President Jean-Claude Trichet said in a statement released yesterday there are ``upside risks' to inflation because of rising oil and food prices, signaling interest-rate cuts were not imminent.

``Inflation is still a problem and the economy is doing relatively well in Europe,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. ``The trend for a stronger euro is intact.'' The euro may rise to $1.5860 and 158.00 yen today, Muta forecast.

Yield Advantage

The yield advantage on two-year German notes over similar- maturity Treasuries increased to 1.85 percentage points on March 26, the most since October 1993. The gap was at 1.74 today.

The euro has gained 8.4 percent versus the dollar this quarter as traders reduced bets the ECB will lower rates this year. The yield on the Euribor interest-rate futures contract expiring in December rose 3 basis points, to 4.04 percent, compared with 3.91 percent a week earlier.

The pound fell to a record 79.29 pence against the euro after reports showed consumer confidence slumped to a 15-year low this month and the U.K. economy expanded slower than forecast in the fourth quarter. It was at 79.16 pence, from 78.64 pence.

Gross domestic product increased 2.8 percent in the three months through December from a year earlier, the least since 2006, the statistics office said.

Carry Trades

The yen dropped against 15 of the 16 most-actively traded currencies as the MSCI Asia-Pacific Index of regional stocks rose 1.1 percent and European shares pared earlier losses, giving investors more confidence to purchase high-yielding assets.

Lower currency volatility may also encourage carry trades. Implied volatility on one-month dollar-yen options fell to 16.50 percent, from 16.65 percent yesterday. Traders quote the gauge of expectations for future currency swings as part of pricing options.

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 moves erode those profits.

South Korea's won fell 0.5 percent to 992.97 per dollar after a central bank report showed a third consecutive current- account deficit and Yonhap news agency reported that North Korea had fired short-range missiles.

The Dollar Index traded on ICE Futures in New York, which tracks the currency against those of six trading partners, was at 71.66, down from 72.71 a week ago. It reached a record low of 70.698 on March 17.

The dollar has fallen 0.8 percent against the pound this week, and traded at $1.9974, from $2.0072 yesterday. It has also declined 1.4 percent versus the Swiss franc, and traded at 0.9956 franc, from 0.9941.

Dollar Drop

The dollar headed for its sixth straight quarterly loss, and the biggest since 2004, as the Fed slashed interest rates by 3 percentage points since September to 2.25 percent. Personal spending rose 0.1 percent last month, the smallest gain in more than a year, a Commerce Department report will show today, according to a Bloomberg News survey.

Futures on the Chicago Board of Trade show traders increased bets the Fed will lower its target rate by a half-percentage point on April 30. The futures showed a 46 percent chance of a reduction to 1.75 percent, compared with 42 percent yesterday. The remaining bets were for a cut of a quarter-point.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: March 28, 2008 07:17 EDT