By Ben Levisohn and Ye Xie Dec. 11 (Bloomberg) -- The dollar rose to a one-month high against the currencies of major U.S. trading partners as gains in retail sales and consumer confidence increased speculation that the Federal Reserve will raise borrowing costs next year. The yen slid against all of its 16 most-traded counterparts tracked by Bloomberg as U.S. stocks advanced on evidence of a global economic rebound. Australia’s dollar gained versus the yen as China’s exports posted the smallest drop in 2009. “We are starting to see the dollar trade consistently to the data: Strong data tends to be positive,” Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “We are seeing a bit more risk appetite.” The Dollar Index, which the ICE futures exchange uses to track the greenback versus the currencies of six major U.S. trading partners, increased 0.7 percent to 76.556 at 10:11 a.m. in New York. It touched 76.588, the highest level since Nov. 3. The index has dropped 6 percent this year as signs of economic recovery led investors to buy higher-yielding assets with amounts borrowed in nations with low interest rates. The benchmark of zero to 0.25 percent in the U.S. has made the dollar popular for funding such transactions. The trading pattern shifted on Dec. 4, when an unexpected drop in the U.S. unemployment rate to 10 percent pushed the Dollar Index up 1.7 percent. “The fact that the dollar strengthened against the euro changes this risk on-risk off scenario,” said Andrew Busch, a global currency and public policy strategist at Bank of Montreal in Chicago. The trade “will morph into something else.” Fed Rate Outlook Futures on the Chicago Board of Trade indicated a 46 percent chance the Fed will raise the target lending rate by at least a quarter-percentage point by its June meeting. The odds were 43 percent yesterday. The central bank next meets to review borrowing costs on Dec. 16. U.S. retail sales rose 1.3 percent in November after climbing a revised 1.1 percent in the prior month, the Commerce Department reported today in Washington. The median forecast of 79 economists in a Bloomberg survey was for a 0.6 percent gain. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 73.4 for December, compared with 67.4 in the previous month. The median forecast of 71 economists in a separate Bloomberg survey was for an increase to 68.8. The dollar rose 1.5 percent to 89.52 yen, from 88.20 yesterday. It appreciated 0.5 percent to $1.4654 per euro, from $1.4732. The yen slid 1.3 percent to 131.21 per euro, from 129.94, paring its weekly gain to 2.6 percent. Yen Versus Euro The yen has dropped 1.2 percent versus the euro this month as signs of a global economic recovery encouraged investors to seek higher-yielding currencies. Japan’s target lending rate is 0.1 percent, compared with 3.75 percent in Australia, 2.5 percent in New Zealand and 1 percent in Europe. The Standard & Poor’s 500 Index added 0.6 percent. The Nikkei 225 Stock Average gained 2.5 percent. The MSCI World Index of shares advanced 0.5 percent. Australia’s currency strengthened for a second day versus the yen as a slower decline in Chinese exports spurred speculation the South Pacific nation will benefit as demand for its commodities grows. China’s exports fell 1.2 percent in November from a year earlier after a 13.8 percent drop in the prior month, the customs bureau reported today. The Aussie advanced 1.3 percent to 81.59 yen, paring a weekly drop to 1.5 percent. Australia’s currency traded at 91.26 U.S. cents, compared with 91.66 cents yesterday, for a 0.2 percent gain this week. Credit Ratings The euro headed for a second weekly decline against the dollar on speculation the credit ratings of more European nations will be lowered. Greece and Ireland are among countries in an “intolerable” economic situation that may lead to bailouts and exits from the euro region before the end of 2010, according to Standard Bank Plc. “We question the ability of countries like Ireland and Greece to grow out of the current crisis,” Steve Barrow, head of Group of 10 foreign-exchange strategy in London at Standard Bank, wrote in a research note today. “With interest-rate cuts, exchange-rate depreciation and significant fiscal support all off limits for these countries, it seems likely that bailouts, or even pullouts from EMU, are likely” before the end of 2010, he said. Spain saw the outlook on its AA+ debt rating cut to “negative” from “stable” by Standard & Poor’s this week. Greece’s credit was reduced one step to BBB+ by Fitch Ratings. Portugal’s outlook was also revised to “negative” from “stable” by S&P.

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