Nov. 29 (Bloomberg) -- Goldman Sachs Group Inc. said the top trade for 2008 will be selling the dollar against a basket of currencies from Malaysia, Singapore and Taiwan as Asian central banks allow faster currency appreciation.

Rising inflation pressures and increasing costs to intervene in the markets will stoke gains in the currencies, said Jens Nordvig, a senior currency strategist at New York- based Goldman, the world's most profitable securities firm.

Goldman, in its annual selection of the top 10 trades, also recommended that investors sell the pound against the yen as U.K. growth slows, pushing the Bank of England to cut its benchmark interest rate from 5.75 percent. Goldman Chief Economist Jim O'Neill said yesterday the dollar's decline has reached a limit.

``We are bullish on the Asian currencies,'' Nordvig said in an interview yesterday. ``The central banks need to allow faster gains for the currencies to curb inflation. With U.S. interest rates going lower, it becomes costly for them to'' sell local currencies and hold dollar assets.

The Malaysian, Singaporean and Taiwanese currencies will each gain about 5 percent to 10 percent against the dollar in the next year, according to Nordvig. The dollar has dropped to its lowest since 1971 this month against a basket of currencies, as the Fed's 0.75 percentage point in rate cuts since September prompted investors to seek higher returns elsewhere.

The Malaysian ringgit, which traded at 3.3695 per dollar at 8:34 a.m. in New York, has gained 4.7 percent this year against the dollar, the Singapore dollar rose 5.9 percent and the Taiwan dollar advanced 0.9 percent over the same period. The Singapore dollar traded at S$1.4491 per dollar and the Taiwan currency traded at NT$32.298 per dollar.

Sell British Pound

Singapore's inflation accelerated in October to 3.6 percent from a year earlier, the highest since 1991, a report showed Nov. 23. The consumer price index in Malaysia rose 1.9 percent from a year earlier, after gaining 1.8 percent in September, a separate report showed Nov. 21.

The bank also advised buying a basket of Brazil's real, Russia's ruble and the Czech koruna against a basket of the U.S. dollar, the Canadian dollar and the pound.

O'Neill said yesterday the performance of the Federal Reserve and the Bank of England since credit markets seized up in August has been ``disappointing'' and he criticized the U.S. central bank for being ``erratic.'' While unsure how the dollar will perform in the coming weeks, O'Neill said he's more optimistic for the year ahead.

``I would be wary of being bearish on the dollar,'' O'Neill told academics and students at the University of Oxford late yesterday. ``I personally think that a year from today the dollar will be quite a bit stronger.''

Trade Deficit

O'Neill said he is optimistic that a narrowing of the U.S. trade deficit will help revive the dollar's allure in coming months. The Goldman economist also said that models used by the investment bank analyzing media reports suggest pessimism about the dollar among market participants is close to a peak.

Investors should hold short positions for gold on expectations that concerns about credit-market losses tied to U.S. subprime-mortgages will subside, Goldman said. A short position is a bet that an asset price will decline in the future.

Gold may decline 15 percent to 20 percent next year, O'Neill said in an interview from London today.

O'Neill said today his economics group made its forecast as part of an annual review of top investments.

``We think gold's gone a long, long way and we think it's due for a 15 to 20 percent move down,'' he said in an interview.

Gold rose to within 0.5 percent of a record $850 an ounce on Nov. 7 as crude oil prices, at their highest ever, spurred demand for the metal as a hedge against inflation. A weakening dollar also encouraged some investors to buy gold as an alternative investment.

Gold for immediate delivery fell 0.6 percent to $799.76 an ounce.

To contact the reporter on this story: Min Zeng in New York at mzeng2@bloomberg.net; Aaron Pan in Hong Kong at Apan8@bloomberg.net.

Last Updated: November 29, 2007 08:40 EST