By Yasuhiko Seki and Yoshiaki Nohara Dec. 16 (Bloomberg) -- The dollar traded near a two-month high against the euro amid prospects the Federal Reserve will withdraw stimulus measures amid signs the U.S. economic recovery is gaining momentum. The greenback was near a one-week high versus the yen before reports forecast to show U.S. housing starts rebounded and consumer prices gained. Traders increased bets that the Fed will raise its policy rate by June as the Federal Open Market Committee goes into its second day of a two-day rate-setting meeting. Australia’s dollar slumped after central bank Deputy Governor Ric Battellino said policy is back in “the normal range,” damping bets for further interest-rate increases. “With data pointing to the upside in the U.S. economy, there’s growing speculation that there will be a change in rhetoric on monetary easing,” said Masahiro Ito, senior manager of foreign-exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker. “If that happens, the dollar carry-trade faces the risk of unwinding.” The dollar traded at $1.4534 per euro at 1:17 p.m. in Tokyo from $1.4538 in New York yesterday when it reached $1.4504, the strongest level since Oct. 2. The U.S. currency was at 89.58 yen from 89.61 yesterday after reaching 89.95, the strongest level since Dec. 7. The yen fetched 130.20 per euro from 130.29. U.S. builders broke ground on 574,000 houses in November at an annual pace, up 8.5 percent, according to a Bloomberg News survey of economists ahead of the data’s release today. Consumer Prices Consumer prices rose 0.4 percent in November on higher gasoline prices after a 0.3 percent gain in the previous month, according to the survey median before a Labor Department report today. Producer prices climbed 1.8 percent last month, the government said yesterday, more than twice the median estimate. Fed funds futures on the Chicago Board of Trade indicated yesterday a 53 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, compared with 48 percent odds the day before. All 97 economists in a Bloomberg survey expect the Fed will keep the target lending rate at zero to 0.25 percent when it releases its statement at the close of its two-day meeting today. Australia’s currency fell against all of its 16 major counterparts on reduced prospects for interest-rate increases following weaker-than-estimated growth data and dovish comments from a central bank official. The nation’s Bureau of Statistics said today that gross domestic product gained 0.2 percent in the third quarter from the previous period, below the median estimate by economists. Borrowing costs for households and businesses have risen faster than the central bank’s target rate, Reserve Bank of Australia’s Battellino said today in Sydney. ‘Cyclical Lows’ “They are now above their previous cyclical lows,” he said. “It would be reasonable to conclude that the overall stance of monetary policy is now back in the normal range, though in the expansionary segment of that range.” Benchmark interest rates are 3.75 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S. The Australian dollar fell as much as 0.9 percent to 89.77 U.S. cents, the lowest since Nov. 27, and traded at 89.87 cents. Demand for the euro was limited after European Central Bank council member Ewald Nowotny said he sees no need to raise interest rates in the first half of 2010 as inflation pressures stay muted. “Our interest rate decisions are to be seen in connection with our price stability goal and in this context I do not see major threats for price stability in the near future,” Nowotny, 65, said in an interview in Vienna. ECB Rates The Frankfurt-based central bank is starting to withdraw emergency measures designed to fight the financial crisis as the euro-region economy recovers from its worst recession since World War II. While President Jean-Claude Trichet says the ECB has no immediate plan to raise its benchmark rate from the current 1 percent, officials have given themselves room to do so next year if necessary. Greece’s 10-year government bond fell yesterday, pushing the yield to the highest level since April. Prime Minister George Papandreou pledged this week “radical” action to bring Greec’s budget deficit within European Union limits by 2013. Austria announced on Dec. 14 that it was nationalizing Hypo Alpe-Adria Bank and injecting as much as 450 million euros ($655 million) into the lender. “Strenuous concerns over the health of finances in some member countries of the euro will exert downside pressure on the euro against the pound in the near-term,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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