March 7 (Bloomberg) -- The dollar dropped for a fourth straight week against the euro after a government report showed the U.S. unexpectedly lost jobs for a second consecutive month in February.

The U.S. currency fell to the weakest ever against the euro and an eight-year low versus the yen as the report bolstered speculation the Federal Reserve will cut interest rates this month for a sixth time since September. The currency rose from the day's lowest levels as the Fed said it will boost loans to banks, leading traders to trim bets on a cut of as much as a full percentage point at the central bank's March 18 meeting.

``There is the view that we're quickly sinking into recession and that the Fed only has a limited ability to offset that,'' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York Mellon Corp. ``We will certainly see more dollar weakness from here.''

The dollar touched $1.5459 per euro, the weakest level since the euro's debut in 1999, before recovering to trade at $1.5348 per euro at 4:04 p.m. in New York from $1.5380 yesterday. The dollar lost 1.1 percent this week. The U.S. currency traded at 102.78 yen from 102.67 yesterday, after falling to 101.43, the lowest since January 2000.

The U.S. currency also rebounded because traders sold euros to protect options-related positions at the $1.55 level, said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey.

``Short-term players tried to push the euro-dollar up to $1.55,'' said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo New York. When it stalled ``they started to abandon their positions.''

Divergence With Europe

The dollar also sank to a historic low of 1.0135 Swiss francs after the government said the U.S. lost 63,000 jobs in February, after a drop of 22,000 in January. The median estimate in a Bloomberg survey was for a gain of 23,000 last month.

``It was a very weak report; this is a very bad signal for risk sentiment and will reinforce dollar weakening,'' said Jens Nordvig, a strategist with Goldman Sachs Group Inc. in New York. ``The U.S. economy is deteriorating very, very rapidly while data is holding up reasonably well in Europe; that makes the divergence even more pronounced.''

In a bid to counter a deepening credit crisis, the Fed boosted the size of auctions of four-week funds to banks planned for March 10 and March 24, to $50 billion each from $30 billion previously. The Fed also said it will make $100 billion available through repurchase agreements. The announcement helped the dollar rebound, Ashraf Laidi, a currency analyst at CMC Markets in New York, wrote in a research note.

Momentum Gauge

Futures show traders see a 96 percent chance the Fed will lower its target rate to 2.25 percent on March 18. The balance of bets is on a cut to 2.5 percent, from 3 percent. In early New York trading, traders had started to bet the cut would be as large as a full percentage point on March 18.

The euro's 14-day relative strength index, a gauge of the speed of the currency's rally against the dollar, is above 70 for the eighth straight day, signaling the euro may be poised to decline. The last time the gauge held above 70, the five days ended Nov. 26, the euro fell about 3 percent against the dollar in the following three weeks.

``The market has gone a long way without taking a breath,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``It needs to take a break.''

`Excessive Moves'

The euro briefly pared some gains against the dollar earlier after European Central Bank President Jean-Claude Trichet said he supports the U.S. government's strong-dollar policy. The euro rose to a record for the eighth trading day in the past nine.

``Excessive moves are undesirable for growth,'' he said at an event in Paris today. ``I approve the strong dollar policy of authorities'' in the U.S.

The euro surged yesterday after Trichet held rates at a six-year high of 4 percent and said there is ``strong upward pressure on inflation'' in the euro region, suggesting he's in no hurry to cut rates.

The euro has gained 17 percent against the dollar in the past year, undermining European exports. The synthetic euro, which estimates the European currency's value before its inception in 1999, advanced to the strongest level since at least January 1989, when Bloomberg's data on the measure began.

Forecasts Revised

The dollar has dropped 12 percent against the yen in the past 12 months as the worst housing slump in 25 years caused $181 billion of credit losses and writedowns at banks, driving the economy toward a recession.

Barclays Capital Inc., BNP Paribas SA, Morgan Stanley and Standard Chartered Plc cut their dollar forecasts against the euro this week.

``A growing number of players expects the dollar to keep falling,'' said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. The market- makers handles about a fifth of all options traded in the U.S.

The U.S. Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.462.

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Last Updated: March 7, 2008 16:08 EST