Sept. 14 (Bloomberg) -- The dollar was little changed versus the euro before next week's Federal Reserve meeting as traders prepared for the U.S. central bank to cut benchmark interest rates by at least 0.25 percentage point.

The U.S. currency gained against the yen as data didn't persuade investors the world's largest economy is on the brink of a recession. The difference in yield between two-year Treasuries and the comparable-maturity German bund widened, making U.S. fixed-income assets more attractive. A report today showed consumer confidence rose this month. The Fed meets on Sept. 18.

``I don't think the market wants to put aggressive bets on Fed rate cuts heading into the meeting,'' said Samarjit Shankar, director of global strategy for the Global Markets group in Boston at Bank of New York Mellon, the world's largest custodian bank with over $20 trillion in assets under administration. ``Staying neutral is the tone of the market for now.''

The dollar gained to $1.3879 per euro at 4:07 p.m. in New York, from $1.3885 yesterday, when the U.S. currency declined to an all-time low of $1.3927. The dollar increased 0.2 percent to 115.30 yen. The euro bought 160.01 yen, from 159.79 yesterday.

Interest-rate futures show 58 percent of traders are betting on a half-percentage-point cut by Fed policy makers. It compares with 76 percent a week ago.

Consumer Confidence

The Reuters/University of Michigan index of consumer confidence rose to 83.8 for September, from 83.4 last month. The median forecast of 66 economists surveyed by Bloomberg News was for a reading of 83.5.

The spread between a two-year U.S. Treasury note and a comparable-maturity German bund today widened 2 basis points, or 0.02 percentage point, to 6 basis points. On Sept. 7, the gap turned negative for the first time in three years.

The dollar earlier fell to as low as 114.37 against the yen after a government report showed retail sales in the U.S. were less than forecast last month. The dollar gained 1.7 percent this week as investors resumed borrowing in Japan to buy higher- yielding assets elsewhere, including the U.S.

Retail sales rose a less-than-forecast 0.3 percent last month following a revised 0.5 percent increase a month earlier. Economists in a Bloomberg News survey had forecast a 0.5 percent gain. Sales not including cars and trucks fell 0.4 percent after a revised 0.7 percent gain a month earlier.

`Didn't Plummet'

``The data didn't plummet as some people had expected, and that took away something from the probability of a 50-basis-point cut,'' said Jonas Thulin, senior currency strategist at Calyon Securities Inc. in New York.

The dollar fell 0.8 percent versus the euro this week after a government report released on Sept. 7 showed U.S. nonfarm payrolls decreased by 4,000 last month after a revised gain of 68,000 a month earlier. It was the first time in four years the economy shed jobs and it prompted traders to boost wagers the Fed would cut rates by 50 basis points next week.

The U.S. currency has lost 4.9 percent against the euro this year as investors bet slowing growth would push the Fed to trim borrowing costs from 5.25 percent while the European Central Bank may need to raise its 4 percent benchmark further to tame inflation. Lower rates dim the allure of dollar-denominated assets.

``The Fed is a consensus place,'' said Jay Bryson, global economist with Wachovia Corp. in Charlotte, North Carolina, who previously analyzed currencies at the Fed. ``They can all agree on a 25-basis-point cut, but they won't all agree on 50. They'll stay on 25 basis points and make sure they can act again if necessary.''

The pound fell to a 14-month low against the euro and dropped 0.9 percent versus the dollar after Northern Rock Plc, a U.K. home lender, received the biggest emergency bailout of a British lender in 30 years.

Pound Versus Dollar

The pound weakened to $2.0067, from $2.0252 yesterday.

Canada's dollar rose above 97 U.S. cents for the first time in 30 years as crude oil climbed to a record this week. The increase raised speculation the currency will trade on par with the U.S. dollar for the first time since November 1976.

China's yuan rose 0.3 percent to 7.5157 versus the dollar this week for a fourth weekly gain and traded near the strongest since a dollar link was scrapped in 2005, after the central bank raised interest rates to slow growth. Reports this week showed inflation quickened to a decade high and retail sales grew at the fastest in three years.

To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net

Last Updated: September 14, 2007 16:09 EDT