Oct. 26 (Bloomberg) -- The dollar fell to a 14-month low versus the euro as stocks advanced around the world amid confidence that the global economy is recovering, sapping demand for the U.S. currency as a refuge from the financial turmoil.

The dollar dropped the most against higher-yielding currencies such as the Australian dollar as Electrolux AB, the world’s second-biggest household-appliance maker, almost doubled third-quarter profit on demand in Europe and North America. The pound traded near the lowest level in at least a week against the euro and the dollar on speculation the Bank of England will boost asset purchases at its policy meeting next month.

“We’re back in the familiar role of the dollar weakening alongside stocks that are picking up,” said Neil Mellor, a currency strategist in London at BNY Mellon Corp., the world’s biggest custodian of financial assets. Currency markets may “be locked and loaded into this sort of frame of mind where the dollar goes lower as stocks edge up,” he said.

The U.S. currency weakened to $1.5032 per euro as of 6:38 a.m. in New York from $1.5008 last week. It earlier dropped to $1.5063, the lowest level since August 2008. The dollar also declined to 91.78 yen from 92.06 yen. The yen traded at 137.98 per euro from 138.15.

The MSCI World Index of shares climbed 0.2 percent and Standard & Poor’s 500 Index futures expiring in December added 0.4 percent, indicating the benchmark for U.S. equities may open higher. Stockholm-based Electrolux rose as much as 11 percent after reporting earnings that beat analysts’ forecasts.

Australia’s currency advanced 0.4 percent to 92.59 U.S. cents. The Norwegian krone advanced 0.3 percent to 5.5429 against the dollar.

Shaking Off Recession

The dollar declined against 12 of its 16 major counterparts on speculation reports this week will add to evidence that some of the world’s biggest economies are shaking off the worst of the recession.

A gauge of French household sentiment improved to minus 35 in October from minus 36 in September, a Bloomberg survey of economists showed before the Paris-based national statistics office releases the report tomorrow. The Conference Board’s index of U.S. consumer confidence increased to 53.5 this month from 53.1 in September, a separate Bloomberg survey showed before tomorrow’s report.

The pound dropped even as a survey of senior executives by Opinion Leader Research for KPMG showed confidence rose to the highest level in 18 months. The currency extended its slump against the euro from Oct. 23, when a government report showed the economy contracted in the third quarter, a result forecast by none of the 33 economists in a Bloomberg News survey.

China Report

Sterling lost as much as 0.4 percent to 92.40 pence per euro, the lowest level since Oct. 15, and was 0.1 percent weaker at 92.11. Against the dollar, it traded as low as $1.6252, the least since Oct. 19, and was at $1.6327.

The yen and euro gained after China’s Financial News said the nation should boost reserves in the currencies. The Beijing- based newspaper, which is affiliated with China’s central bank, said the nation should raise the amount of yen and euro while keeping the dollar as the main component.

“The Chinese article revived concern over the status of the dollar and triggered knee-jerk selling of the greenback,” said Yuichiro Harada, senior vice president of the foreign- exchange division at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender.

Korean Won

China is the biggest international owner of U.S. government debt followed by Japan. The nation’s foreign-exchange reserves, the world’s largest, surged in the third quarter as an economic recovery attracted speculative capital and a weakened dollar boosted valuations of its yen and euro assets. The holdings climbed about $141 billion to a record $2.273 trillion, the central bank said this month.

South Korea’s won climbed after a higher-than-forecast expansion in its economy spurred expectations its central bank will raise borrowing costs. Gross domestic product increased 2.9 percent in the third quarter from three months earlier, the central bank said today in Seoul. That was the fastest since the first quarter of 2002 and compared with a median estimate of 1.9 percent growth in a Bloomberg survey.

The won climbed 0.3 percent against the dollar to 1,177.90.

Higher Rates

The dollar traded at the highest level in more than a month versus the yen earlier on speculation the Federal Reserve will boost interest rates sooner than some economists forecast. The Wall Street Journal said Fed officials are likely to discuss next month how and when to signal the possibility of higher U.S. interest rates.

Members of the U.S. central bank are contemplating the best way to let the market know that a period of record-low rates will draw to an end, the Journal reported Oct. 24, without saying where it got the information. The issue may be “on the table” when the Federal Open Market Committee meets Nov. 3-4.

The Fed will increase the target rate for overnight bank loans to 0.5 percent in the second quarter of 2010, according to economists surveyed by Bloomberg. The Bank of Japan is projected to maintain interest rates at least until the end of the first quarter of 2011.

“We may see a corrective move with the dollar trying to push higher,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA, France’s largest bank. “The Fed may be looking to change its statement slightly, suggesting that they are not going to have an open ended statement with regards to interest rates remaining at low levels.”

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., making the yen and dollar favored targets for investors seeking to fund so-called carry trades. The risk in such transactions is that currency-market moves will erase profits.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

Last Updated: October 26, 2009 06:48 EDT