new york (Bloomberg) The dollar advanced the most against the euro since January as subprime losses encouraged investors to avoid riskier assets and repatriate money.

The US currency increased more than two cents from a record low against the euro and rose from the weakest in 26 years versus the pound as investors sought refuge from a global rout of stocks and corporate bonds. The dollar's rally may sputter next week on a government report forecast by economists to show slowing job growth this month.

The dollar benefited "from liquidation of foreign equity positions by US investors, a dynamic which has periodically boosted the dollar during times of equity market stress over the past several years," said Daniel Katzive, a senior currency strategist in Stamford, Connecticut, at UBS AG. "We think this phenomenon has further to go."

The US currency rose 1.4 percent to $1.3636 per euro this week and 1.55 percent to $2.0242 per pound. It was the biggest weekly advance against the euro since January and the most versus the pound since September. The dollar rebounded after dropping on July 24 to $1.3852 per euro, a record low, and $2.0654 per pound, the weakest since May 1981.

The dollar advanced against all 16 of the most actively traded currencies tracked by Bloomberg except the yen this week, rising four percent against the New Zealand dollar, 3.2 percent versus the Australian currency, 1.5 percent against the Canadian dollar and 0.6 percent versus the Swiss franc.

"The dollar is enjoying the safe-haven bid," said Stephen Malyon, co-head of currency strategies in Toronto at Scotia Capital Inc. "We are seeing signs of spillovers from the housing slump."

US employers probably added 128,000 jobs in July, down from 132,000 a month earlier, according to the median forecast of 64 economists surveyed by Bloomberg News. The jobless rate is forecast to stay at 4.5 percent. The payroll data is due from the Labour Department on August 3.

San Francisco-based Wells Fargo & Co., the second-biggest US mortgage lender, said July 26 it will stop funding subprime home loans for third-party mortgage brokers as defaults among the riskiest borrowers surge. Calabasas, California-based Countrywide Financial Corp., the biggest US mortgage lender, reported July 24 its third straight decline in quarterly profit as late loan payments increased.

"The subprime problem has raised concern of a spillover into the broader credit market," said Kathy Lien, chief currency strategist in New York at DailyFX.com. "If the Fed affirms the market's expectation to cut rates, it will lead to a weakening dollar in the months ahead."

Federal Reserve policy makers have held the target rate for overnight lending between banks at 5.25 percent since an increase in June 2006. The benchmark compares with 4 percent in euro zone, 5.75 percent in the U.K. and 0.5 percent in Japan, the lowest among industrialized nations.

Traders raised bets the Fed will cut rates to 5 percent by year-end. The yield on fed funds futures contracts due in December fell yesterday to 5.06 percent from 5.18 percent a week ago.

The yen advanced against the 16 most actively traded currencies this week as a global sell-off in stocks, credit bonds and emerging-market assets prompted investors to cut higher-yielding investments funded by loans in Japan, known as carry trades.