Oct. 17 (Bloomberg) -- The dollar fell against the euro and yen in Asia on concern a tropical depression approaching the Gulf of Mexico will disrupt U.S. oil production, push up energy prices and damp economic growth.

The U.S. currency slid to a one-week low against the euro on concern the depression will strengthen and add to damage caused by Hurricanes Katrina and Rita. The dollar fell 2 percent versus the euro the week Hurricane Katrina ravaged the Gulf Coast on Aug. 29.

``The risk of additional weather-related incidents is going to leave markets nervous about the U.S. dollar,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. They are ``especially nervous, considering the dollar closed last week very close to some pretty significant highs.''

The dollar dropped to 113.91 yen as of 2:15 p.m. in Tokyo, from 114.08 in New York on Oct. 14, according to electronic currency dealing system EBS. It last week climbed for a fifth week, reaching 115.09, the highest since Sept. 19, 2003. The U.S. currency fell to $1.2108 against the euro from $1.2075.

The euro rose to a one-week high of $1.2121 after it breached $1.21, triggering pre-set orders to buy the currency, said Alex Sinton, an Auckland-based senior dealer at ANZ Investment Bank.

The currency also advanced as European Central Bank President Jean-Claude Trichet on Oct. 16 said inflation may exceed the central bank's 2 percent ceiling next year, suggesting the bank is edging closer to lifting rates across the dozen-nation euro area.

Gulf Coast output, where the U.S. pumps about a third of its oil, is still 67 percent below normal. Federal Reserve Bank of Kansas City President Thomas Hoenig on Sept. 26 said storm damage could cut economic growth this year by half a percentage point.

`Kicked Up'

``The word in the market is that a tropical storm is heading toward the Gulf, which has kicked up oil prices'' and curbed support for the dollar, Sinton said.

The tropical depression southwest of Jamaica in the Caribbean has maximum wind speeds of 35 miles an hour and is heading west- northwest, the hurricane center said in a forecast posted on its Web site at 8 p.m. New York time yesterday. It is expected to strengthen to a storm within the next 24 hours.

Crude oil for November delivery rose as much as 2 percent to $63.86 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It's up about 19 percent in the past year.

Any losses in the dollar may be curbed by speculation reports in the U.S. this week on manufacturing and inflation will gird the view that the Federal Reserve will keep raising interest rates.

`Bias to Rise'

``The dollar will have a bias to rise,'' said Tetsu Aikawa, a currency sales manager in Tokyo at UFJ Bank Ltd., a unit of Japan's largest lender by assets. ``Wholesale prices may support the view that inflation concerns will keep the interest-rate differential story going.''

The Fed raised its benchmark rate to 3.75 percent on Sept. 20 and is expected to lift it to 4 percent at its next meeting Nov. 1. The European Central Bank has held its rate at 2 percent for the past two years and the Bank of Japan kept borrowing costs at almost zero for 4 1/2 years.

Regional manufacturing surveys from the Fed due today are expected to show factory activity improved this month. The New York Fed's Empire index probably increased to 19 in October from 17 in September, according to the median forecast of 35 economists surveyed by Bloomberg News.

A government report due tomorrow will probably show U.S. wholesale prices rose 1.2 percent in September, the biggest jump since October 2004, after a 0.6 percent gain in August, according to the median forecast of 52 economists surveyed by Bloomberg.

Survey

Fifty-eight percent of the 53 traders, strategists and investors surveyed by Bloomberg News on Oct. 14 from Sydney to New York advised buying the dollar against the euro, compared with 22 percent who recommended selling the U.S. currency. Fifty-three percent predicted it would gain versus the yen.

Gains in the U.S. currency were erased on Oct. 13 after futures broker Refco Inc. blocked customer withdrawals from a currency trading unit, raising speculation traders were forced to sell dollar assets to raise funds.

``Refco could have a deeply adverse impact on the dollar,'' said Takehiko Jimbo, currency manager at Mitsubishi UFJ Trust & Banking Co. in Tokyo, a unit of Japan's largest lender by assets. It ``raises concern about the credit market and liquidation of funds' investments'' in high-risk assets.

The euro also rose on speculation the ECB may raise rates, after Trichet's comments and on anticipation investor confidence in Germany, Europe's largest economy, rose in October.

The ZEW Center for European Economic Research index of institutional and analyst sentiment may have increased to 42 from 38.6, the ZEW may say tomorrow, according to the median of 41 forecasts in a Bloomberg survey.

``A stronger confidence figure may be used as a reason to buy the euro,'' Mitsubishi UFJ Trust's Jimbo said. ``The dollar is basically in an adjustment phase against the euro and the yen after having a good rally in past weeks.''

The euro may trade between $1.2070 and $1.2160 against the dollar today. The U.S. currency may trade between 113.40 and 114.30 yen, Jimbo said.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net.

Last Updated: October 17, 2005 01:16 EDT