Dec. 2 (Bloomberg) -- The dollar fell to a record low against the euro for a third straight day on concern a strengthening U.S. economy may swell the U.S. trade deficit and boost the amount of dollars flowing into foreign hands.

Traders sold the U.S. currency as reports in the past week have shown U.S. manufacturing surging and orders for durable goods rising. As the U.S. economy accelerates, imports grow boosting the nation's trade deficit, the broadest gauge of which is the current account.

``It's unreservedly a positive U.S. growth story,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York. ``What's bedeviling the U.S. dollar now is the perception that the current-account deficit is not being adequately financed by inflows of foreign investment into U.S. securities.''

The U.S. currency weakened to $1.2077 per euro at 4:11 p.m. in New York from $1.1978 yesterday, and fell as far as $1.2092. The dollar's slide accelerated as it breached the $1.2043 level that was the record low set yesterday. The dollar dropped to 108.60 yen per dollar from 109.41 yesterday, and touched the weakest level against Japan's currency since Nov. 19.

Woolfolk's year-end forecast is $1.30 per euro.

The deficit in the U.S. current account held at a record $138.7 billion in the second quarter. As the U.S. outpaces its major trading partners, that shortfall may expand. U.S. gross domestic product expanded at an 8.2 percent annual rate in the third quarter, while Canada, the U.S.'s biggest trading partner, grew 1.1 percent.

With the Federal Reserve holding its target interest rate at a 45-year low of 1 percent, half that of the European Central Bank, international investors may not have much of an incentive to funnel dollars back into U.S. assets. The Bank of England raised its benchmark rate to 3.75 percent last month, helping spur a rally in the British pound to a five-year high.

Labor Report

Traders may get more signs of U.S. economic strength as the government is projected to report on Friday that the nation added 150,000 non-farm jobs in November, according to the median forecast of analysts in a Bloomberg News survey. That would be the biggest monthly increase since January.

The U.S. economy needs to attract about $1.5 billion a day in foreign investment to plug its current-account gap, which held at a record $138.7 billion in the second quarter.

The government is also relying on foreign investors to help finance its budget deficit. The gap may exceed $500 billion this fiscal year, according to White House estimates. That would be 5 percent of gross domestic product, the most since 5.9 percent during fiscal 1983, when Ronald Reagan was president.

International investors ``are deeply concerned over the rising twin deficits,'' said Paresh Upadhyaya, who helps manage $70 billion as a currency strategist at Putnam Investments in Boston. Data last month showing a dip in foreign buying of U.S. securities raise concerns ``over how the current-account deficit will be financed.''

Pre-Set Orders

The dollar also slid today on pre-set orders to sell the U.S. currency when it breached $1.20 per euro.

``A lot of this is technical,'' meaning it was triggered by so-called stop-loss orders by traders, said Brian Taylor, chief trader in Buffalo at Manufacturers & Traders Trust, which has $50 billion in assets. The break past $1.20 sparked euro buying and turned that level into ``support,'' he said.

Additional orders to buy the euro above the $1.2050 level may push the currency to $1.21 per euro today, Taylor said.

``There were stops above $1.2040-$1.2050 and they've all been triggered,'' said Scott Schultz, a currency trader at Brown Brothers Harriman & Co. in New York.

The Dollar Index, which charts the currency against a basket of six currencies of U.S. trading partners, fell as low as 89.58, the weakest since January 1997. The index reached as low as 78.19 in 1992.

French Confidence

Fifteen major currencies rose against the dollar today, with the British pound reaching a five-year high of $1.7312. A rally in the pound past $1.7345 would put it at the highest since 1992. The Australian dollar today rose above 73 U.S. cents for the first time since 1997.

In a sign that foreign appetite for U.S. investments may be waning, Treasury Department data showed last month that foreigners added about $4 billion to their holdings of U.S. securities in September, the smallest amount since September 1998.

The euro fell earlier today after a report of flagging consumer confidence in Europe. Confidence in France declined in November on concern about job losses. Separately, Austrian Finance Minister Karl-Heinz Grasser told Bloomberg News that the rally this year in the euro ``is not positive'' for the region's exporters.

Theoretical Average

``If anything's going to stop the euro from going higher it will be the underlying economics in Europe,'' said Lisa Finstrom, senior currency analyst at Citigroup Inc. in New York, in a Bloomberg News radio interview. ``They're just not as robust as the U.S.''

Other European officials were more sanguine about the euro's rally. Juergen Stark, vice president of the Bundesbank, said the euro's exchange rate is ``not exceptional,'' though it is ``slightly above'' its long-term average.

Using data tracking the euro's 12 component currencies going back 15 years, the euro's theoretical average for that period is about $1.1360.

Today's European economic reports ``reinforce the view that the euro-land economy relative to the U.S. is still performing pretty poorly,'' said Alejandro Urbina, a currency strategist in Chicago at Banc One Capital Markets. ``If you were to take those things in isolation they would have to argue for a weaker euro.''

The bank's three-month forecast is $1.12 per euro.

Last Updated: December 2, 2003 16:19 EST