By Stanley White Oct. 23 (Bloomberg) -- The dollar rose to the highest against the euro in almost two years on speculation the U.S. government will increase support for the housing market. The currency advanced for a seventh day on bets the European Central Bank will favor interest-rate cuts to support the 15-nation economy. The Wall Street Journal reported the U.S. may spend $40 billion to prevent more home foreclosures, citing a person familiar with the plan. The yen trimmed gains as U.S. stock futures climbed and Asian stocks pared losses. ``After this news came out, stock futures rose and the currency market went into reverse,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third-biggest bank. ``This is somewhat positive for the dollar.'' The U.S. currency rose to $1.2805 per euro as of 8:47 a.m. in London from $1.2855 late in New York yesterday. It earlier touched $1.2728, the strongest since November 2006. The currency also traded at 97.63 yen from 97.66 yen. The greenback may advance to 98.50 yen today, Ogawa forecast. Sterling traded at $1.6303 from $1.6267, after touching $1.6139 yesterday, the lowest since September 2003. It dropped as much as 3.4 percent, the biggest decline since September 1992, when investor George Soros drove the currency out of Europe's system of linked exchange rates. The pound was at 78.65 pence per euro. `Disturbing Number' The greenback advanced against 10 of the 16 most-active currencies as Standard & Poor's 500 Index futures rose 1.5 percent following a 5.9 percent decline yesterday. South Korea's won dropped 3.3 percent to 1,408.90 and Taiwan's dollar slipped 0.9 percent to NT$33.260. Treasury Secretary Henry Paulson said this week that he aims to intensify efforts to stem foreclosures by using part of the government's $700 billion financial-rescue fund. ``There still are a disturbing number of foreclosures where people are walking away from their mortgages,'' Paulson told PBS television's Charlie Rose in an interview in New York that was broadcast on Oct. 21. ``There is clearly more that can be done -- needs to be done.'' The seven-day drop in the common European currency was the longest stretch since Sept. 8. ECB Executive Board member Jose Manuel Gonzalez-Paramo signaled lower borrowing costs. The British pound declined to near a five-year low on speculation U.K. consumer spending shrank and the economy slowed. ``There are concerns over a deepening slowdown in Europe that may lead to further rate reductions,'' said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France's second-largest bank by market value. ``The euro may test immediate support at $1.2680.'' `Weakness was Entrenched' The euro declined as ECB's Gonzalez-Paramo told the Irish Independent newspaper in an interview today the bank expects ``inflation to come down more quickly than a month ago as a result of slower growth, lower commodity prices.'' ``Weakness was entrenched early in the Asian session following dovish comments from ECB Executive Board member Gonazalez-Paramo in the Irish Independent,'' wrote Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney, in a research note today. Investors are betting the ECB will lower borrowing costs by another half-percentage point by June after cutting the main refinancing rate by a half point to 3.75 percent on Oct. 8, part of coordinated reductions by major central banks. The implied yield on the three-month Euribor contract expiring in June fell to 3.210 percent today from 3.310 percent a week earlier. To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net

Source