The dollar fell the most against the euro in two weeks on speculation industry reports will show U.S. consumer confidence dropped to a five-year low and the housing slump deepened.

The dollar dropped from a one-week high against the yen as more economists forecast the economy will suffer a recession. The U.S. currency also weakened against the Australian and New Zealand dollars, favorite targets of so-called carry trades, as a rally in European and Asian stocks encouraged investors to buy higher-yielding assets.

``Interest will continue to come down and that means that the dollar is going to continue to weaken in the short term,'' said Peter Rosenstreich, the chief market analyst at ACM Advanced Currency Markets SA in Geneva. ``Our base case scenario is very much grounded in the U.S. going into recession and probably deeper and longer than we had expected.''

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The dollar fell to $1.5532 per euro at 9:16 a.m. in London, the biggest drop since March 12 based on closing prices, from $1.5423 late yesterday in New York. It declined to 100.61 yen, from 100.74 yesterday. The euro rose to 156.28 yen, from 155.39. The pound gained to $1.9923 from $1.9855. The dollar will fall to $1.58 per euro in coming weeks, Rosenstreich forecast.

Against the Australian dollar, also known as the Aussie, the U.S. currency weakened to 91.32 U.S. cents, from 90.59 cents yesterday. It declined to 80.29 U.S. cents per New Zealand dollar from 79.77 cents and dropped 2.1 percent versus the Korean won from the Asia close to 976.2.

Stocks Rally

The yen also fell 0.6 percent to 91.86 per Australian dollar and 0.5 percent to 80.77 per New Zealand dollar. The Dow Jones Stoxx 600 Index of European shares advanced 2.7 percent and the MSCI Asia-Pacific index rose 3.2 percent after JPMorgan Chase & Co. quadrupled its bid for Bear Stearns Cos. to about $10 a share, bolstering confidence in financial assets.

``People want to believe there's a bit more calm in the markets,'' said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm by market value. ``That brings yield differentials into focus, which tends to favor the euro against the dollar. This is a type of dollar carry trade.''

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