Sept. 8 (Bloomberg) -- The dollar rose to the highest level since October against the euro as the U.S. government's takeover of Fannie Mae and Freddie Mac boosted confidence in financial markets in the world's largest economy.

The U.S. currency also touched the strongest this year versus the Swiss franc after the government vowed to support the two companies that account for almost half the country's $12 trillion home-loan market. South Korea's won surged the most in a decade on reduced concern that a global credit-market slump would make it difficult for Korean companies to pay their debts.

``The Federal Reserve and government are doing everything to bring the house in order, while most of the rest of the world hasn't even started to stimulate their economies,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. ``I would view the Treasury's announcement as being a positive for the dollar in the medium, longer term. It'll entice foreign flows into U.S. fixed-income assets.''

The dollar rose 0.9 percent to $1.4147 per euro at 3:57 p.m. in New York, from $1.4267 on Sept 5. It earlier gained to $1.4054, the strongest since Oct. 9. The dollar increased 1 percent to 1.1296 versus the Swiss franc after touching 1.1373, the strongest since Dec. 28. The yen declined 0.3 percent to 108.09 against the dollar. The euro fell 0.5 percent to 152.88 yen.

South Korea's won strengthened 3.3 percent to 1,081.2 per dollar as speculation eased that the country is headed for a repeat of the 1997 currency crisis after the bailout of the two U.S. companies was announced.

Longest Winning Streak

The dollar rose for an eighth day versus the European single currency, the longest winning streak since 2003. The U.S. currency has gained 13 percent versus the euro since touching a record low of $1.6038 on July 15, as Europe's economy slowed and crude oil tumbled to $106.22 per barrel from the record $147.27 on July 11.

``The momentum is with the dollar,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. ``The dollar strength is a continuation of the theme we've seen in the last couple of weeks.''

The U.S. government seized control of Fannie Mae and Freddie Mac yesterday after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies. The Treasury said it will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.

`Get Over It'

``It does address the key risk to the U.S. financial system,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``But it's not a panacea for the market. It's not solving the problems with the ongoing falling housing prices and mounting consumer debts. I do think the market will get over it pretty quickly.''

The Standard & Poor's 500 Index gained 1.8 percent, adding to a rally across Europe and Asia.

Traders increased bets to a record that the euro will decline against the U.S. dollar last week, figures from the Commodity Futures Trading Commission in Washington showed.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 38,623 on Sept. 2, compared with net shorts of 33,778 a week earlier. It was the highest since the euro's debut in 1999.

Pound Versus Dollar

The pound slid to as low as $1.7471, the weakest since April 2006. The U.K. currency is about 20 percent too strong against the dollar, even after falling 12 percent this year, according to New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund company.

Futures traders became more bearish on the U.K. currency than at any time in the past 16 years, data from the CFTC showed.

Charts show the U.S. currency may rise to 109.20 yen this week, said Pak Lai Ng, a technical analyst at Forecast Singapore Pte.

The U.S. currency is poised to gain after forming a so- called hammer on its candlestick chart on Sept. 5, which often indicates the reversal of a decline, Ng said. First resistance at 109.20 yen is near last week's high, he said. The dollar may advance to second resistance at 110 yen on a break of first resistance, according to Ng.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net;

Last Updated: September 8, 2008 16:01 EDT