By Catarina Saraiva Jan. 24 (Bloomberg) -- The dollar declined against most of its major counterparts as a gain in stocks before this week’s meeting of Federal Reserve policy makers encouraged demand for higher-yielding assets. The euro advanced to the highest level against the dollar since November following two consecutive weeks of gains. The pound fell against the euro before a report that may show the U.K.’s economic growth slowed in the fourth quarter. “Risk is being put back on, and the dollar is suffering, the euro benefiting,” Brian Dolan, chief strategist at FOREX.com, a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. The dollar depreciated 0.4 percent to $1.3672 versus the euro at 11:15 a.m. in New York, from $1.3621 on Jan. 21, after touching $1.3686, the weakest level since Nov. 22. The greenback dropped 0.2 percent to 82.42 yen, from 82.57. The euro increased 0.2 percent to 112.67 yen, from 112.48. U.S. stocks rose, sending benchmark indexes to near two- year highs, as acquisitions and share-buyback plans overshadowed concern the Europe’s debt crisis will get worse. The Standard & Poor’s 500 Index gained 0.3 percent. Futures traders have reversed their bets the euro will decline against the dollar, calling for a gain in the shared currency for the first time since November. The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 4,109 on Jan. 18, compared with net shorts of 45,182 a week earlier. Outlook for Euro “For the euro to continue to trend higher, it is likely that euro fundamentals would also have to begin to become more favorable supporting the recent shift in positioning,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London, wrote in a note to clients. “However, we remain far from convinced that euro-zone fundamentals are set to become more favorable for the euro with the euro’s recent bounce likely to prove unsustainable.” The euro has appreciated 1.8 percent so far this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar is little changed, while the yen has dropped 2.3 percent. Ireland’s political leaders said they will press to pass a budget before elections after the Green Party left Prime Minister Brian Cowen’s coalition. Passing the plan is a condition of the 85 billion-euro ($115 billion) aid package from the International Monetary Fund and the European Union. The pound fell against the euro on waning speculation the Bank of England will raise interest rates this year. Britain’s Growth U.K. gross domestic product likely rose 0.5 percent in the fourth quarter after a 0.7 percent increase in the third quarter, according to a Bloomberg News survey before tomorrow’s report from the Office for National Statistics. “The markets are a bit premature in expecting the Bank of England to hike rates anytime in the next few months,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole SA, said in an interview with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” The Bank of England will publish the minutes of its last interest-rate decision on Jan. 26. It left its benchmark rate at 0.5 percent on Jan. 13 and kept its asset-purchase program at 200 billion pounds ($320 billion). The pound declined 0.4 percent to 85.45 pence per euro after dropping 0.9 percent last week. Sterling was little changed at $1.5999. Dollar Index The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped 0.4 percent to 77.911 after sliding 1.2 percent last week. The Federal Reserve will leave its benchmark rate unchanged at zero to 0.25 percent at its Jan. 25-26 meeting, according to all 98 economists surveyed by Bloomberg. “The Fed has the freedom to not do anything this year, but if the numbers start getting a lot better a lot sooner, then they can pull the trigger,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “You have to see much better numbers, specifically the unemployment.” Economic momentum will be building by the middle of the year and some Fed officials may focus on tightening monetary policy, according to Laurence Meyer, a former Fed governor who’s now vice chairman at St. Louis-based Macroeconomic Advisers. President Barack Obama said in a video to supporters that tomorrow’s State of the Union address will focus on cutting the deficit, reducing unemployment and ensuring the U.S. can compete with economic rivals. Gross domestic product climbed at a 3.5 percent annual pace in the fourth quarter, compared with a 2.6 percent rate in the prior three months, according to a Bloomberg News survey of economists before the Commerce Department’s report on Jan. 28. --Editors: Dennis Fitzgerald, Greg Storey To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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