The dollar dropped the most in more than a week against the euro on concern Israeli attacks on Hamas in the Gaza Strip will fan Middle East tensions and disrupt oil supplies to the U.S. The greenback also slid versus the yen before housing and manufacturing reports this week that may show the world’s largest economy is slipping further into recession. The British pound fell to a record low against the euro after a survey of U.K. estate agents and surveyors forecast home prices will slide in 2009, extending this year’s decline. “The oil price is helping to drive the dollar lower,” said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia’s biggest bank. “What’s happening in the Middle East is definitely having an impact.” The dollar slid to $1.4270 per euro at 8 a.m. in New York, from $1.4028 on Dec. 26. It weakened as much as 2.3 percent, the biggest intraday decline since Dec. 17. The U.S. currency fell 0.5 percent to 90.33 yen from 90.81. It touched 87.14 on Dec. 17, the lowest level since 1995. The euro increased 1.3 percent to 129.05 yen from 127.40. The pound slid for a sixth day versus the euro, dropping as much as 1.9 percent to a record 97.97 pence as Hometrack Ltd. said in a report that residential property prices fell 8.7 percent on average in the U.K. this year, led by a 10.1 percent slide in London. Prices are forecast to fall a further 10 percent next year and 3 percent more in 2010, the property researcher said on Dec. 22. The U.K. currency rose 0.3 percent to $1.4626. Sterling Versus Euro Sterling headed for a 25 percent drop against the euro this year, its biggest annual decline ever, on speculation a deepening U.K. economic slump may prompt the Bank of England to cut interest rates, which at 2 percent are the lowest since 1951. The pound, together with major European currencies, became freely convertible in world markets on Dec. 29, 1958. The pound may rebound as investors start betting on a recovery in the U.K. economy, according to the world’s biggest currency traders. Sterling will strengthen 14 percent against Europe’s common currency next year, according to the median forecast of 42 analysts and strategists surveyed by Bloomberg. Deutsche Bank AG, the largest trader as measured by Euromoney Institutional Investor Plc, predicts a 20 percent gain. The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.5 percent to 79.711 as Israeli air strikes in the Gaza Strip killed more than 285 people, prompting protests across the region from Saudi Arabia to Syria. Crude oil for February delivery rose as much as $4.49, or 12 percent, to $42.20 a barrel in electronic trading on the New York Mercantile Exchange. Mideast ‘Tensions’ “The tensions in the Middle East appear to be causing buying of the euro,’ said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “When there’s geopolitical risk in that region, the dollar tends to be sold.” The dollar may weaken to $1.46 per euro by the end of next month, Sakai said. The dollar also slid on speculation U.S. housing and manufacturing reports this week will show the economy is deteriorating. Home prices for the 20 largest metropolitan areas fell 17.8 percent in October from a year earlier, the biggest decline since record-keeping began in 2001, according to a Bloomberg News survey of economists before the S&P/Case-Shiller index is published tomorrow. Factory Index The Institute for Supply Management’s December factory index dropped to 35.4, the lowest reading in almost three decades, a separate Bloomberg survey shows. The ISM report is due Jan. 2. The Federal Reserve this month cut its benchmark interest rate to as low as zero for the first time and shifted its focus to debt purchases in an effort to revive the economy. “The fact that rates are near zero is the most important factor for the dollar,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp., a custodian of $23 trillion of financial assets. “The Fed has turned on the printing presses and that’s not good for the currency, from a supply and demand perspective.” The U.S. currency has dropped 19 percent versus the yen this year, the largest loss since 1987. The dollar has increased 2 percent versus the euro.

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