Aug. 18 (Bloomberg) -- The dollar fell from the highest level in almost six months against the euro and dropped versus currencies in New Zealand and Australia on speculation its recent rally is too fast to be sustained.

The U.S. currency decreased against the yen as concern the government will be forced to bail out Fannie Mae and Freddie Mac led some investors to sell higher-yielding assets and pay back loans in Japan's currency. The greenback has gained 8.1 percent versus the euro since touching the record low in July on evidence economies outside the U.S. are slowing.

``The dollar had a significant run without any consolidation,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``It's not surprising to see it taking a break.''

The dollar dropped 0.1 percent to $1.4702 per euro at 4:09 p.m. in New York, from $1.4687 on Aug. 15. It touched $1.4647 today, the strongest level since Feb. 20, compared with the all- time low of $1.6038 set July 15. The dollar declined 0.5 percent to 109.99 yen, from 110.53 on Aug. 15, when it reached 110.66, the strongest level since Jan. 2. The euro decreased 0.4 percent to 161.70 yen, from 162.30.

The greenback fell 0.2 percent to 86.79 U.S. cents per Australian dollar, the biggest decline in four weeks. It dropped 0.5 percent to 70.97 cents per New Zealand dollar.

Dollar's Gains

The dollar has increased against all of the other major currencies this month on speculation global central banks will lower interest rates as economies slow and as crude oil fell from a record. Last week the U.S. currency touched 85.93 U.S. cents versus the Australian dollar, the highest level since January, and reached 68.25 versus the kiwi, the strongest level since August 2007.

Compared with the 2 percent fed funds target, benchmark lending rates are 4.25 percent in the euro area, 7.25 percent in Australia and 8 percent in New Zealand.

The ICE futures market's dollar index, tracking the greenback against the currencies of six U.S. trading partners, fell for the first time in 12 days, dropping almost 0.1 percent. It has risen about 7 percent since July 15 as economies in Japan and Europe contracted.

The 14-day relative strength index of the euro against the dollar was at 18 today. A reading below 30 suggests the euro is due for a rebound.

``The relentless dollar rally is coming to an end,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. ``The market now is finding equilibrium.''

Currency Range

The U.S. currency will trade in a range of $1.45 to $1.50 per euro in the next two weeks, Kassel said.

The dollar dropped against the yen today on speculation a government bailout of mortgage-finance companies Fannie and Freddie would wipe out common stockholders, discouraging the carry trade, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's benchmark lending rate of 0.5 percent is the lowest among industrialized countries.

U.S. stocks declined for the first time in three days, led by Fannie and Freddie. The Standard & Poor's 500 Index decreased 1.5 percent.

``Stocks are weighing on the dollar-yen a little,'' said Steve Butler, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Bank of Nova Scotia, Canada's third-largest bank. ``With the lack of any real data, the market is waiting for some reason to start another wave of dollar buying.''

JPMorgan Outlook

JPMorgan Chase & Co., the third-largest U.S. bank, raised its forecasts for the dollar against the euro. The dollar may trade at $1.47 per euro by year-end, compared with a previous forecast of $1.50, wrote Tohru Sasaki, chief currency strategist at JPMorgan in Tokyo, in a research note today.

Futures traders are betting for the first time since March 2007 that the greenback will advance against the euro, yen, Canadian dollar, Swiss franc, Australian dollar and pound.

The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on Aug. 15.

`Bull Market'

``We are essentially in a bull market for the dollar,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``A modest pullback in the dollar would be an opportunity to build new longs.'' A long position is a bet that a currency will appreciate.

The Brazilian real is showing signs of weakening as a decline in commodity prices cuts export receipts and adds to concern that the current-account deficit, the broadest measure of trade, will keep widening.

The real has slid 4.6 percent in the past two weeks to 1.6337 per dollar today as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials sank 17 percent from July 2. Commodities account for about one-third of exports in Latin America's biggest economy.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

Last Updated: August 18, 2008 16:14 EDT