July 16 (Bloomberg) -- The dollar advanced in New York trading, reaching an 11-week high against the euro, after Federal Reserve Chairman Alan Greenspan yesterday told Congress U.S. economic growth will quicken in coming months.

The U.S. currency also had its biggest gain against the yen in almost three weeks as traders said the Bank of Japan may have sold its currency. Zembei Mizoguchi, Japan's vice finance minister for international affairs, told reporters at the Finance Ministry that Japan would counter ``speculative'' moves in the foreign-exchange markets.

``We're seeing the market switch to growth as a driver'' for currency movements, said Tony Dolphin, who helps run $32 billion at Henderson Global Investors in London. ``On a relative growth perspective, the U.S. is the place to be.'' That may push the dollar to about $1.05 versus the euro in three months, he said.

The dollar strengthened to $1.1149 per euro at 8:38 a.m. New York time, from $1.1179 yesterday, and earlier reached $1.1116, the strongest since April 30. It climbed to 118.44 yen, from 117.95 yesterday, for its biggest one-day rise since June 26.

Greenspan yesterday said low U.S. interest rates, rising stock prices, tax cuts and the end of the Iraq war ``should bolster economic activity over coming quarters'' in the U.S. The Fed Chairman testifies today before the Senate Banking Committee starting at 10 a.m. New York time.

The Fed said yesterday in a report that the U.S. economy will grow as much as 4.75 percent next year, compared with 2.5 percent to 2.75 percent this year. European growth will expand as little as 0.4 percent this year and about 1.1 percent next year, the European Central Bank said last month.

Dollar Bulls

``We will see our growth rate rise significantly,'' U.S. Treasury Secretary John Snow said today, speaking to reporters in London. He added that as a ``general policy,'' he doesn't support the buying and selling of currencies by governments.

Yields on the U.S. 10-year note are almost 1 percentage point higher than the 45-year low of 3.07 percent reached a month ago. At the same time, the euro has lost 6 percent against the dollar in the past month. The higher U.S. yields may draw investors to U.S. fixed income assets.

``The odds are favoring the dollar for the moment,'' said Jason Bonanca, a currency strategist at Credit Suisse First Boston in New York. ``We can see some more dollar bullishness,'' particularly against currencies such as the Canadian dollar, which had benefited in recent month from higher yields available in that economy, he said.

Industrial Production

``Interest-rate differentials between euro-denominated financial instruments and U.S. dollar financial instruments have narrowed considerably recently,'' said Nikos Garganas, a member of the European Central Bank's rate-setting council, in an interview in Athens with Bloomberg News at the Bank of Greece, which he heads.

A Fed report at 9:15 a.m. New York time will probably show U.S. industrial production rose 0.1 percent in June, gaining for a second month. A government report showed that excluding food and energy, consumer prices were unchanged for the third time in four months.

Sales at U.S. retailers increased last month, a government report yesterday showed, while a Federal Reserve Bank of New York survey showed New York state manufacturing had a third month of expansion in July.

Europe's largest economy will probably stagnate this year, the International Monetary Fund said, according to the German Finance Ministry. That compares with an April forecast of 0.5 percent growth. In 2004, growth may reach 1.5 percent, less than a previous estimate of 1.9 percent.

Bank of Japan

Gains in the dollar against the yen may be limited after Japan's central bank, in its monthly evaluation of the economy, said it sees faster growth for the first time since July 2002, citing rising business confidence and stock prices.

``Japan's economy seems to be improving,'' said Takashi Nakata, head of foreign-exchange proprietary sales in Tokyo at BNP Paribas SA, France's biggest bank. ``The yen could rise some after this. Still, we have to be careful of the BOJ'' selling yen, he said.

The Bank of Japan, which acts for the Ministry of Finance in the currency market, sold about 629 billion yen ($5.32 billion) in June and has spent more than 7 trillion yen this year to stem gains in its currency, according to ministry figures.

``I wouldn't be surprised'' if the BOJ intervened, said Tokyo-based Minoru Shioiri, senior manager for treasuries and foreign exchange at Mitsubishi Securities Co., the brokerage unit of Japan's third-largest bank.

Mizoguchi declined to say whether Japan sold yen.

The dollar has lost 1.7 percent against the yen in the past six months. A stronger yen erodes the profits Japanese exporters earn on overseas sales.

Last Updated: July 16, 2003 08:43 EDT