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Dollar touches three-month high point

NEW YORK (Bloomberg) — The dollar touched a three-month high against the currencies of major US trading partners as the Federal Reserve said the economy improved while reiterating it will keep borrowing costs low for an "extended period."

The euro dropped against the pound as Greece's credit rating was cut by Standard & Poor's and the European Central Bank raised its estimate for write-downs in nations using the single currency by 13 percent. The dollar posted its biggest weekly rally since June before an economic report next week forecast to show an advance in US durable goods.

"This positive outlook from the US, from the Fed and much better data we have been recently seeing are giving you the impetus to get the euro-dollar lower," said Emma Lawson, a currency strategist at Morgan Stanley in London, in an interview on Bloomberg Television.

The Dollar Index, which the ICE futures exchange uses to track the greenback against the euro, yen, pound, franc, Canadian dollar and Swedish krona, rose 1.5 percent to 77.721 this week, from 76.573 on December 11, the biggest rally since the five days ended June 5. The index touched 78.141 yesterday, the highest level since September 4.

The gauge of the dollar has appreciated 4.8 percent from this year's weakest level reached on November 26 as government figures showed the US unemployment rate fell last month to 10 percent and retail sales rose more than forecast.

Before the payrolls report on December 4, the greenback had fallen 20 percent from the 2009 peak reached in March as evidence of a global economic rebound spurred investors to buy higher-yielding assets funded with dollars.

"With that better economic data and better outlook, the US dollar stops being the funding currency of choice as it was in 2009," Lawson said.

The dollar appreciated 1.9 percent to $1.4338 per euro, from $1.4615 last week. It strengthened yesterday beyond $1.43 for the first time since September 4. The yen strengthened 0.4 percent to 129.75 per euro, from 130.24. The US currency advanced 1.6 percent to 90.49 yen, from 89.10. The euro decreased 1.3 percent to 88.74 UK pence.

Deterioration in the labour market is "abating," and household spending is increasing, the Fed said in its statement at the conclusion of its two-day meeting on December 16. Policy makers held the target rate for overnight lending between banks at zero to 0.25 percent.

Orders for US durable goods increased 0.5 percent in November after a 0.6 percent drop in the previous month, according to the median forecast of 59 economists in a Bloomberg survey. The report from the Commerce Department is due December 24.

The Australian dollar was the biggest loser this week against the greenback among major currencies tracked by Bloomberg, dropping 2.5 percent to 89.02 US cents. Reserve Bank Deputy Governor Ric Battellino damped expectations for further rate boosts, saying this week monetary policy is back in "the normal range". The bank raised borrowing costs for three straight months beginning in October.

The yen fell against the dollar this week after the Bank of Japan said it won't tolerate consumer price declines, spurring speculation the central bank will maintain a target lending rate of almost zero.