May 20 (Bloomberg) -- The dollar fell the most in more than a month against the euro as the price of oil rose above $129 for the first time and speculation increased that the European Central Bank will keep interest rates high.

The euro gained after an adviser to the German government said European policy makers may raise borrowing costs as soon as the financial crisis ends. The Australian dollar rose to its highest level in 24 years after minutes of the central bank's last meeting signaled policy makers considered raising rates.

``As much as it pains me to say it, the dollar rally has been derailed for the time being,'' said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp. in New York, the world's largest custodian bank with more than $20 trillion in assets under administration.

The dollar slid 1 percentage point, the most since April 16, to $1.5658 per euro at 4:26 p.m. in New York, from $1.5510 yesterday. The currency declined to 103.72 yen, from 104.33. The euro was at 162.40 yen, from 161.81.

Crude oil touched a record $129.60 a barrel in New York after billionaire hedge-fund manager Boone Pickens said it will reach $150 this year. The correlation coefficient between oil prices and the euro-dollar exchange rate has been 0.95 for the past year, indicating they have moved in the same direction 95 percent of the time.

Prices paid to U.S. producers, excluding food and fuel, rose more than forecast in April, reflecting increases in automobile and furniture costs, the Labor Department said today in Washington.

`Data Worrisome'

``The data is worrisome from the inflation perspective,'' said Stephen Malyon, a currency strategist at Scotia Capital Inc. in Toronto. ``The stagflation situation is not good for the economy and the dollar.''

Traders sold dollars to reach the 50 percent retracement level of the rebound from the record low on April 22, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. Retracement is a reversal of a gain. The price of $1.565 represents a halving of the rebound from the record low $1.6019 and could trigger further declines to $1.574 in the next couple of days, he said.

The U.S. currency declined to $1.9686 against the British pound from $1.9489. It dropped to 1.0369 versus the Swiss franc from 1.0533. The Dollar Index traded on ICE futures in New York, which tracks the dollar against currencies of six trading partners, fell to 72.405 from 73.045 yesterday.

``The dollar has been coming under pressure versus the euro lately, which could be the start of a new trend,'' said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. ``The euro is being buoyed by the continued hawkishness of the European Central Bank.''

German Producer Prices

The euro gained after Germany's Federal Statistics Office in Wiesbaden today said producer-price inflation in the nation, an early indicator of price pressures in the economy, accelerated to the fastest pace in almost two years in April on energy costs.

The single currency briefly pared gains after an industry report showed investor confidence in Germany unexpectedly fell. The ZEW Center for European Economic Research said its index of investor and analyst expectations declined to minus 41.4, from minus 40.7 in April. Economists expected a gain to minus 37, according to a Bloomberg News survey. The gauge reached a 15-year low of minus 41.6 in January.

``I would recommend that the ECB keep rates constant until there is clear evidence the financial crisis is over,'' Wolfgang Franz, one of five advisers to the German government and head of the ZEW center, told reporters in Mannheim today. ``Then the ECB might need to raise rates to take care of inflation. My expectation is that the ECB will raise rates in the near future.''

Stocks Fall

The yield advantage of a German two-year bund over a comparable Treasury rose to 1.67 percent from 1.34 percent on May 13. A widening yield gap makes the euro-denominated asset more attractive.

The yen advanced after stocks fell, prompting investors to curb so-called carry trades and repay cheap loans taken out in the currency. The Standard & Poor's 500 Index fell 1 percent.

The International Monetary Fund said the U.S. housing slump still poses ``serious risks'' to financial markets.

The Japanese currency held gains earlier after the Bank of Japan kept its benchmark interest rate at 0.5 percent. Governor Masaaki Shirakawa told a press conference inflation risks are rising globally. The Federal Reserve has cut its benchmark rate seven times since September, bringing it to 2 percent.

Australia's dollar touched 96.19 U.S. cents, the strongest since 1984, before trading at 95.82 cents.

Australian Minutes

The nation's central bank minutes ``immediately prompted the buying of Australian dollar against the U.S. dollar,'' said Kenichi Yumoto, senior currency dealer at Societe Generale SA in Tokyo. ``This led to dollar-selling against other major currencies.''

The Australian currency will advance after climbing above a trend line passing through its Oct. 31 high of 107.87 yen and its May 7 high of 99.84 yen, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

The Norwegian krone rose 0.7 percent to 4.9994 against the dollar as oil prices rose. It has gained 1.9 percent over the past three trading days. Norway is the fifth-biggest oil exporter.

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: May 20, 2008 16:28 EDT