Dec. 28 (Bloomberg) -- The dollar fell by the most in two weeks against the euro on concern a U.S. report today will show home prices declined, backing the case for the Federal Reserve to keep interest rates near zero. The dollar weakened versus 15 of 16 major counterparts as economists surveyed by Bloomberg News said the S&P/Case-Shiller Index of property values will show its first decline since January. Australia's dollar rose to a six-week high on speculation China will succeed in curbing inflation, underpinning demand for higher-yielding assets. South Korea's won reached the highest level in two weeks on prospects Asian economies are improving. "Cheap housing prices imply the Fed is still far from the exit," said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. "It makes investors hesitate to buy the dollar, especially when the market thins at the end of the year." The U.S. currency dropped 0.5 percent to $1.3232 per euro at 6:25 a.m. in London from $1.3165 in New York yesterday, after earlier touching $1.3255, the lowest since Dec. 17. The dollar is poised for its sharpest daily decline since Dec. 13. The greenback fell to 82.44 yen from 82.81 yen. The S&P/Case-Shiller gauge of residential real-estate values declined 0.6 percent in October from the prior month, when it fell 0.8 percent, economists said before today's data. The gauge lost 0.2 percent from a year earlier, the survey showed, and the index was down 29 percent in September from its July 2006 peak. U.S. Home Price U.S. home prices will fall 5 percent to 7 percent more before a reaching a bottom in late 2011, said Stan Humphries, chief economist of Zillow Inc., a provider of housing data. "Supply is just overwhelming," Humphries said in an interview yesterday on Bloomberg Television. "We are tripping over houses in this country right now." The Fed reiterated this month its commitment to keep borrowing costs low for an "extended period," holding the target rate for overnight lending between banks at zero to 0.25 percent, where it has been since December 2008. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell for a fourth day and reached 79.839, the lowest level since Dec. 17. China Rate Increase Australia's dollar gained for a seventh day. The decision by China, Australia's biggest trading partner, to raise interest rates over the weekend will help curb asset bubbles and inflation expectations, Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary for the China Daily. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, lost 1.3 percent today, while the MSCI Asia Pacific Index of regional shares rose 0.2 percent. The People's Bank of China increased its key one-year lending and deposit rates by 25 basis points to 5.81 percent on Dec. 25 in its second move since mid-October. "Perceptions that China is managing inflation well seem to be supporting risk appetite," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. "The bias is for the dollar and the yen to be sold." The so-called Aussie rose 0.4 percent to $1.0085. It earlier reached $1.0091, matching its Nov. 11 high. The currency is set for a 12 percent gain this year against the U.S. dollar, the second-best performer among major peers after the yen. Korean Won South Korea's currency gained for a second day after data showed Japan's industrial production increased for the first time in six months in November. Japan's economic data "can be a factor that will help Asian currencies strengthen," said Yun Se Min, a currency trader at Busan Bank in Seoul. Japan's factory output climbed 1 percent from October, when it dropped 2 percent, the trade ministry said in Tokyo today. The won climbed 0.1 percent to 1,147.90 per dollar. It earlier touched 1,146.50, the strongest level since Dec. 15. --With assistance from John Liu in Shanghai and Frances Yoon in Seoul. Editors: Jonathan Annells, Nate Hosoda

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