Dec. 17 (Bloomberg) -- The Australian dollar headed for its first weekly advance in three as prices for coal, the country's biggest export, rose.

The rally started early in the week after Japanese mills said they will double the amount they pay for coking coal, used in steelmaking. A slide in the currency today was tempered by expectations some holders of News Corp. shares, which are being transferred to the U.S., will sell following the switch and bring their proceeds back home.

``This is a very large increase in the price of Australia's single largest export,'' said Alex Schuman, manager of foreign- exchange strategy at Commonwealth Bank of Australia in Sydney. ``This provides another reason to expect the currency to rise over the coming six months.''

The Australian rose to 76.23 U.S. cents at 5:10 p.m. in Sydney from 74.70 a week ago. The currency fell 0.2 percent today after a U.S. government report showed the current-account deficit in the world's biggest economy grew less than many economists forecast in the third quarter.

Australia's currency will rise to 80 cents by the end of the first quarter and to 82 cents by the middle of next year, Schuman said. Commonwealth Bank is the nation's second-biggest lender.

Japanese mills will pay BHP Billiton, the Melbourne-based world's biggest mining company, about $125 a metric ton for coking coal in the year starting April 1, officials at Nippon Steel Corp. and Sumitomo Metal Industries Ltd. said Dec. 13. The figure compares with $56 a ton this year.

More Optimistic

``These negotiations are leaving some in the market, including ourselves, more optimistic on the value of Australia's commodity exports,'' said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. ``The Australian dollar should'' rise.

Annual contract prices for thermal coal, which is used to run power stations, from Australia will climb to $52 a metric ton from about $45 this year, based on the median estimate of nine analysts surveyed by Bloomberg News.

Global coal demand has risen every year since 1999 with the fuel accounting for about a quarter of the world's energy use.

Raw materials account for about two-thirds of Australia's exports which in turn make up about a fifth of the economy.

The country is also the largest global supplier of iron ore, alumina and zinc. The Goldman Sachs Industrial Metal Index has risen 19 percent this year amid demand for raw materials from China.

Bonds Fall Today

Australian government bonds fell for the first day this week. The 6.25 percent bond maturing in April 2015 dropped 0.503, or A$5.03 per A$1,000 face amount, to 108.382. The yield climbed 6 basis points to 5.19 percent. A basis point is 0.01 percentage point.

Today's currency decline was limited because of expectations fund managers holding News Corp. will sell their shares in the U.S.

Between A$2 billion and A$4 billion may be reinvested in Australian equities as News Corp.'s representation in the country's benchmark stock index is reduced by a quarter at the close of business today, UBS AG said.

News Corp., owner of the Fox TV network and the New York Post, will be removed from the local index in four stages over a nine-month period after shareholders voted in October to incorporate the world's fifth-biggest media company in the U.S.

Australia's dollar also rallied this week on buying of local stocks by overseas investors, Commonwealth Bank's Schuman said.

Australia's S&P/ASX 200 Index rose for a sixth day today to a record. Miners and energy producers such as BHP Billiton and Woodside Petroleum Ltd. led gains this week.

The index has climbed 21 percent this year compared to an 8.2 percent gain of the U.S. Standard & Poor's 500 index.

``We've seen a lot of accounts buying Australian dollars to buy Australian resource stocks as a proxy to Asian industrial growth,'' Schuman said. ``It's very rare we see such a strong inflow into stocks from offshore but the neatest way to buy into Chinese industry is buy an Australian miner.''

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.

Last Updated: December 17, 2004 01:14 EST