Jan. 19 (Bloomberg) -- The dollar rose against the euro and yen after the government said the number of Americans filing first-time claims for unemployment benefits fell last week to the lowest since April 2000.

The report bolstered expectations the Federal Reserve will raise interest rates two more times to prevent inflation from accelerating. The dollar gained 14 percent in 2005 as the Fed raised rates eight times and the European Central Bank did so only once.

``It looks like we have a fairly robust employment market,'' said Naomi Fink, senior currency strategist at BNP Paribas Securities in New York. ``The Fed has a couple of more rate hikes to do. There could be some support for the dollar.''

The dollar climbed to $1.2097 versus the euro at 5 p.m. in New York, from $1.2113 late yesterday. The U.S. currency also rose to 115.40 yen from 115.24.

Initial jobless claims declined by 36,000 to 271,000 in the week ended Jan. 14, the Labor Department said today in Washington. Another report showed U.S. housing starts fell in December, more than economists forecast.

Futures trading suggests the Fed will raise its key rate to 4.5 percent on Jan. 31, double the ECB's benchmark rate of 2.25 percent. Investors see about a 58 percent chance the Fed will raise borrowing costs again in March.

``We expect the Fed to raise rates to 4.75 percent in March,'' said Callum Henderson, head of currency strategy at Standard Chartered Ltd. in Singapore. ``The market isn't fully pricing this in, so it suggests a risk the dollar will receive support in the short-term.''

The dollar will climb to $1.20 against the euro and 116 yen during the next week, Henderson said.

Bin Laden Tape

A separate report showed manufacturing growth in the Philadelphia region slowed this month. The Federal Reserve Bank of Philadelphia's general economic index for January fell to 3.3 from 10.9 in December. Readings above zero signal expansion.

The dollar's gains against the euro were pared after a man identified as al-Qaeda leader Osama bin Laden warned of more attacks against the U.S., in an audiotape broadcast by al-Jazeera television.

``The bin Laden tape has led to some dollar selling,'' said Lara Rhame, a currency strategist at Credit Suisse in New York. ``Even though the data is so strong, there is latent concern that the economy is vulnerable. The tape fits with the view of those who think the U.S. economy is at risk of falling into a sinkhole.''

Euro Zone Inflation

Losses in the euro may be limited after ECB Chief Economist Otmar Issing said in an interview yesterday that oil prices may extend gains and economic growth is picking up, suggesting the bank has room to raise interest rates further.

``The overall expectation is that the current high level'' of oil prices ``will stay with us for a while and it could get worse,'' Issing said. The Frankfurt-based central bank said risks to inflation lie ``on the upside'' in its monthly report released today. Oil reached $66.93 yesterday, the highest since Sept. 30, up 38 percent from a year ago.

A European Union report today showed inflation in the dozen nations sharing the single currency remained above the ECB's 2 percent target for a sixth year in 2005. Consumer prices rose 2.2 percent from a year earlier in December after increasing 2.3 percent in November.

Even so, ECB policy maker Guy Quaden told the weekly Trends business magazine that the ECB didn't plan a series of rate increases when it raised borrowing costs for the first time in five years in December.

Yen's Prospects

The yen may gain on speculation the economic recovery in the world's second-largest economy is fast enough for the country to move toward ending zero interest rates.

A Ministry of Finance report today showed foreign investors have been net buyers of Japanese shares in the past 16 weeks, the longest streak of purchases in almost 10 months.

Japan's economy is recovering as companies boost investment and an improvement in the labor market encourages consumers to spend, the government said in its economic report for January today. The Bank of Japan has kept borrowing costs at almost zero since 2001.

Japanese Finance Minister Sadakazu Tanigaki said today that mild deflation, which the country has battled for seven years, still persists, though he repeated that it can be beaten this year.

The BOJ this week will maintain the deflation-busting zero- rate policy, according to all 16 economists surveyed by Bloomberg News. The central bank will issue its own report on the economy tomorrow in Tokyo.

The central bank will raise its growth forecasts for this fiscal year and next in its report, the Mainichi daily said on its Web site last week, citing an unidentified BOJ official.

``People may go back to focus on Japan's economic fundamentals,'' said Keizo Tanaka, senior currency dealer in Tokyo at Resona Bank Ltd.

To contact the reporter on this story: Joshua Krongold in New York at jkrongold2@bloomberg.net; Jake Lee in London at jlee127@bloomberg.net.

Last Updated: January 19, 2006 17:12 EST