March 14 (Bloomberg) -- The dollar's record-breaking slide may trigger the first coordinated effort to shore up the currency in 13 years, according to strategists at Morgan Stanley and Goldman Sachs Group Inc.

The currency yesterday fell below $1.56 a euro for the first time and slumped to the lowest level in 12 years versus the yen. That has prompted complaints from European Central Bank President Jean-Claude Trichet and Japanese Finance Minister Fukushiro Nukaga. U.S. Treasury Secretary Henry Paulson said yesterday he backs a ``strong dollar'' and refused to elaborate when questioned at a press conference in Washington.

The challenge for officials is fighting the $3.2 trillion- a-day currency market while the Federal Reserve reduces interest rates and the U.S. economy falters. With traders increasing bets on a weaker dollar, the Group of Seven nations may be compelled to act, some strategists said.

``We're on an intervention watch,'' Stephen Jen, Morgan Stanley's London-based head of foreign-exchange research, said in a telephone interview. ``While I don't think we have reached the threshold yet, the argument in favor of it is gradually becoming compelling.''

The dollar yesterday dipped below 100 yen for the first time since 1995, when the G-7 last stepped in to prop up the currency. It's lost 15 percent against the euro since September as the Fed's rate reductions dull the currency's allure.

Watanabe Anxiety

The U.S. currency extended the drop today after Bear Stearns Cos. sought funding from the Fed and JPMorgan Chase & Co. to stem worsening finances, falling to $1.5688. That's the weakest since the euro's debut in 1999. The dollar slid as low as 99.57 yen, the weakest since October 1995. It fell below parity with the Swiss franc for the first time.

Executives, investors and politicians say they're becoming increasingly worried. Dollars are ``printed on toilet paper,'' Marc Faber, managing director of Marc Faber Ltd., said in an interview with Bloomberg Television.

Toyota Motor Corp. President Katsuaki Watanabe said on March 7 the stronger yen is making conditions ``tough'' for the carmaker. Germany's MTU Aero Engines Holding AG, the largest independent provider of jet-engine maintenance, said yesterday that the weaker dollar may ``cancel out'' the company's growth in euro terms this year.

Fragile Markets

The U.S. currency's drop may also infect other markets by further weakening confidence in U.S. assets, said Jim O'Neill, chief economist at Goldman Sachs. Morgan Stanley's Jen said the weaker dollar is already spurring higher commodity prices.

``The dollar's fall will worry other markets, which are so fragile right now,'' O'Neill said in a telephone interview. ``Intervention will definitely be on the minds of policy makers.''

Any action by the G-7 would be the first since its governments united in September 2000 to boost the euro. The dollar sank as low as 79.75 yen in 1995 to prompt a rescue then.

Since 2002, the G-7 has focused on lobbying China to stop meddling to weaken the yuan while leaving itself with some room to maneuver by noting its aversion to ``excess volatility and excessive movements in exchange rates.''

A united bid to aid the dollar may still not be around the corner. For now, a falling U.S. currency and surging euro are giving support to a weakening American economy by spurring its exports. It's also helping the ECB contain inflation, which at 3.3 percent, is the highest in more than 14 years.

Potential Futility

Supporting the dollar may also prove futile, as its decline partly reflects the Fed's cuts and the ECB's decision not to follow, said Chris Turner at ING Financial Markets.

The Fed has cut its main rate by 2.25 percentage points since September to 3 percent, while the ECB's rate is still at a six-year high of 4 percent.

``Failed intervention is worse than no intervention,'' said Turner, ING's head of currency research in London. ``Policy makers have their hands tied and will defer to the global priority of the Fed slashing interest rates.''

Japan may be more willing to step into markets at a time when its economy is deteriorating and as investors start to bet the Bank of Japan will cut rates by year-end, said Ashley Davies, a currency strategist at UBS AG in Singapore.

``Intervention could easily become consistent with monetary policy,'' said Davies. ``We don't see any major reason why the Bank of Japan cannot resume.''

Mr. Yen's Doubts

Eisuke Sakakibara, dubbed ``Mr. Yen'' for his ability to influence the currency during his 1997-1999 tenure as a vice finance minister, is more skeptical. He told a conference in Tokyo on March 11 that the yen is still cheaper than when he sold dollars a decade ago.

``The yen is still pretty much weak against major currencies such as the euro,'' Sakakibara said.

Policy makers are still stepping up their rhetoric. Trichet said March 10 that he's ``concerned'' about the euro's surge, while Nukaga said today that abrupt currency shifts are ``bad'' for economic growth.

European Union leaders meeting in Brussels said today that ``disorderly'' currency moves are ``undesirable,'' making a last-minute addition to their communiqué.

O'Neill also senses a shift in the Bush administration. Paulson said on March 7 that ``the long-term fundamentals are strong, and I'm confident they'll be reflected in our currency market.''

O'Neill said G-7 finance ministers may sound an alarm when they convene in Washington on April 11, perhaps by inserting Paulson's statement of support for the dollar.

``A change in the G-7 statement is highly likely in April,'' said O'Neill. ``Whether they can last until then without doing anything is another question.''

Last Updated: March 14, 2008 10:44 EDT