Dec. 16 (Bloomberg) -- The dollar held near a one-week low against the euro and fell versus the yen on expectations a U.S. government report today will say the current-account deficit widened to a record.

The U.S. currency is down 3.3 percent against the euro since Federal Reserve Chairman Alan Greenspan told the European Banking Congress in Frankfurt on Nov. 19 that foreigners may grow weary of financing the shortfall in the current account, the broadest gauge of trade, and channel money into other currencies.

``Talking to investors around the planet, the same story is dominating,'' said Neil Jones, a director of foreign-exchange sales in London at BNP Paribas SA. ``People are expecting a further decline for the dollar.'' It may weaken to $1.35 per euro for the first time before the end of the month, he said.

Against the euro, the dollar traded at $1.3405 at 8:17 a.m. in New York from $1.3392 late yesterday, according to electronic foreign-exchange trading system EBS. The currency dropped to a record low of $1.3470 per euro on Dec. 7. Against the yen, the dollar fell to 103.63 compared with 104.26.

In other trading, the British pound surged to its highest in more than 12 years against the dollar after U.K. retail sales rose in November by more than expected, stoking expectations of a further interest-rate increase by the Bank of England. The U.K. currency soared to as high as $1.9550, a level it last traded above in September 1992.

`Problems for Dollar'

The U.S. current-account gap probably grew to a record $170.6 billion in the third quarter, the Commerce Department will say, according to the median forecast of 53 economists surveyed by Bloomberg News. The current account is a measure of trade, services, tourism and investments. The report will be released at 8:30 a.m. in Washington.

``In the year-end, early next year, there could be some problems for the dollar,'' said Robert Sinche, head of currency strategy at Banc of America Securities LLC in New York. Next year, the dollar may recover, especially against the euro, as higher interest rates and faster growth attract investors, he said.

Switzerland's central bank said today the share of its foreign-exchange reserves denominated in dollars declined this year while the proportion held in British pounds and the yen rose.

``The weakening of the U.S. currency resulted in a further decrease in the dollar's share of foreign currency reserves,'' Philipp Hildebrand, who votes on interest rates at the Swiss National Bank said in Zurich. He spoke after the central bank kept its benchmark rate at 0.75 percent. The franc weakened versus the euro after the decision.

Demand for Assets

The U.S. must attract about $1.8 billion a day from overseas to fill the gap and maintain the value of the dollar, based on Bloomberg calculations. Net purchases of securities in the U.S. increased at the slowest pace in a year in October, the Treasury Department said yesterday in its monthly report on transactions involving foreign investors and U.S. residents.

``Foreign investors haven't been buying U.S. equities or bonds at the same rate they were,'' said Monica Fan, head of currency strategy in London at Royal Bank of Scotland Group Plc. ``That augurs for further dollar weakness.''

The yen's gains may be limited after NHK Television said Japan will cut its economic assessment for a second month, adding to signs the world's second-largest economy is slowing. Japan will probably downgrade its assessment for a second month, NHK said on its Web site, without saying where it obtained the information.

``People are expecting less and less from Japan's economy,'' said Shimpei Uike, a fund manager of overseas debt in Tokyo at Asahi Life Asset Management, which manages the equivalent of $10.5 billion. ``Support for the yen is diminishing as the economy in the U.S. is picking up and stocks are rising.''

The yen may drop to 108 per dollar in three months, he said.

The Bank of Japan's quarterly Tankan survey yesterday showed confidence among large manufacturers may fall next quarter. The economy grew at a 0.2 percent annual pace in the third quarter, compared with a 3.9 percent expansion in the U.S.

`Benign Neglect'

The euro region posted a current-account deficit of 3.2 billion euros in September, according to a report published on Nov. 25. Japan has a current-account surplus of 1.36 trillion yen ($13 billion) in October, a report released on Dec. 9 showed.

The current-account gap was equivalent to 5.7 percent of U.S. gross domestic product in the second quarter, up from 5.1 percent in the first quarter. President George W. Bush yesterday said U.S. policy is to promote a strong dollar.

``The policy of my government is a strong-dollar policy,'' Bush said. ``We believe the markets should make the decision about the relationship between the dollar and the euro.''

He was speaking at the White House after he met with Italian Prime Minister Silvio Berlusconi. The Italian prime minister on Dec. 9 said he's concerned about the euro's strength against the dollar, which has crimped exports and put Europe on course to be the world's slowest growing region next year.

``That's nothing more than Bush paying a lip service to his guest,'' said Yusuke Fujisawa at Dai-Ichi Kangyo Asset Management, which invests the equivalent of $17 billion. ``That means the U.S. will maintain its benign neglect of the dollar's weakening.'' The dollar may weaken to $1.35 this year, he said.

After meeting Japan's Prime Minister Junichiro Koizumi at the start of a two-day summit of Pacific Rim nations in Santiago, Chile, Bush on Nov. 20 said he supports the strong-dollar policy. The dollar has weakened 2.9 percent versus the euro since then.

To contact the reporters on this story: Richard Blackden at rblackden@bloomberg.net; Joshua Krongold in New York at at jkrongold2@bloomberg.net

Last Updated: December 16, 2004 08:17 EST