July 13 (Bloomberg) -- The yen posted its biggest weekly gain since March against the dollar and advanced versus the euro after Iran asked Japan's oil refiners to pay for Iranian crude oil in the Japanese currency instead of dollars.

The yen rose today versus 15 of the 16 most actively traded currencies on speculation the request by Japan's third-biggest oil supplier would spur yen buying.

``This will create demand for the yen,'' said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. Companies in Japan will ``have to sell dollars to raise money to pay for oil.''

The yen advanced to 121.99 per dollar at 4:01 p.m. in New York, from 122.42 late yesterday, for a 1.1 percent gain this week. Japan's currency rose to 168.15 per euro from 168.80, and touched a record low of 168.95. The dollar traded at $1.3787 per euro from $1.3789, and set an all-time low of $1.3814 after U.S. retail sales fell in June.

National Iranian Oil Co. asked the refiners to use the yen exchange rate quoted at the Bank of Tokyo Mitsubishi UFJ Ltd. on the date cargoes are loaded, according to a letter obtained by Bloomberg News. The letter was dated July 10 and signed by Ali A. Arshi, general manager for crude oil marketing and exports in Tehran. The change is effective ``immediately,'' the letter said.

Switching Currencies

A spokesman for Iran's oil ministry in Tehran said he could neither confirm nor deny that the letter had been sent. Most Japanese oil refiners have until now used U.S. dollars to pay Iran for oil, said the spokesman, who declined to be identified by name because of government policy.

Iran, holder of the world's second-largest oil and gas reserves, asked buyers of its crude oil more than a year ago to pay for purchases in currencies besides the U.S. dollar because of the dollar's decline, Khatibi Tabatabai of National Iranian Oil said March 22.

``I don't think the impact will last long,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG. ``There is nothing new. Iran has been diversifying away from the dollar and today's news is just another step along that path.''

Iran is cutting its U.S. dollar reserves to less than 20 percent of total foreign currency holdings, and will buy more euros and yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27.

Japan imports 1.24 trillion yen ($10.1 billion) in oil annually from Iran, according to the finance ministry in Tokyo. Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data.

Iran has refused to halt uranium enrichment that it says is for use in nuclear power plants to produce electricity. The U.S. says Iran seeks instead to develop an atomic bomb.

Record Low

The U.S. currency fell to a record low against the euro after a government report showed retail sales fell 0.9 percent in June, the lowest since August 2005 and below the median forecast of a 0.1 percent decline. Retail sales rose 1.5 percent in May.

``The retail sales were disappointing and clearly negative for the dollar,'' said Nick Bennenbroek, head of currency research in New York at Wells Fargo & Co. ``The data help to reinforce the dollar's recent losses.''

Bennenbroek said the dollar may fall to $1.39 in the next couple of weeks. The U.S. currency fell 1.2 percent versus the euro this week, the most since March.

The dollar pared some losses after the Reuters/University of Michigan consumer sentiment index rose to 92.4 in July, from a 10-month low of 85.3 in June.

`Slow Crawl'

After breaking through barriers related to options trades at $1.38, the euro is now facing more selling, or so-called resistance, at the $1.3830 level, said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York.

``We are not going to see an explosive down move in the dollar, it's going to be a slow crawl from now on,'' Kassel said.

One gauge of momentum signaled the dollar may be poised to rebound. The 14-day relative strength index for the euro-dollar rate was at 76.7, down from 77.64 yesterday, the highest since December 2006. A reading above 70 indicates a reversal may be coming.

The euro fell 2.2 percent versus the dollar in the month ended Jan. 13 after gaining 3.2 percent the prior month. The 13- country currency has gained 3.6 percent in the past month.

China's yuan gained 0.4 percent this week to 7.5712 per dollar, its biggest advance since China ended a link to the dollar in July 2005. Traders speculated that pressure from the U.S. for quicker currency gains will increase as the trade gap between the two nations widens.

China's trade surplus surged 87 percent to a record $26.9 billion in June, driving foreign-exchange reserves to an all- time high of $1.33 trillion, the highest in the world. Export proceeds boosts cash in the financial system and make it more difficult for the government to cool economic growth.

To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Min Zeng in New York at mzeng2@bloomberg.net.

Last Updated: July 13, 2007 16:30 EDT