Dollar Set for Weekly Gain on Fed Steps to Restore Confidence

March 21 (Bloomberg) -- The dollar headed for the first weekly advance against the euro and the yen in a month after the Federal Reserve's decision to accept more collateral for loans eased concern about banks' access to capital.

The U.S. currency rose against the pound and the Swiss franc this week after the Fed made an emergency cut to the rate it charges banks to borrow and said it would swap Treasuries for mortgage-backed securities. The Fed also lent $28.8 billion to U.S. securities firms, its first extension of credit to non-banks since the Great Depression.

``The dollar is enjoying a bounce,'' said Hideki Amikura, deputy general manager of currencies at Nomura Trust and Banking Co. in Tokyo, a unit of Japan's largest brokerage. ``The Fed is working to restore confidence. U.S. investment bank earnings weren't as dire as some predicted.''

The dollar traded at $1.5430 per euro as of 7:05 a.m. in New York, set for a 1.4 percent gain in the past five days, the first weekly advance in more than a month. The dollar bought 99.44 yen, little changed from late yesterday and up 0.4 percent this week, the first weekly gain since Feb. 15. The yen rose 1.2 percent this week to 153.53 per euro, touching the strongest since August.

The pound fell 1.8 percent this week to $1.9830. The dollar gained 1.1 percent to 1.0090 Swiss francs.

Currency moves may be exaggerated today as trading volume will be less than half of normal due to public holidays in the U.S., the U.K. and other financial markets, said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co.

Holiday Exaggerates Moves

The dollar may rise to 101 yen in the next few days, Nomura Trust's Amikura forecast.

The dollar bought 5.2571 Norwegian kroner from 5.2630 late yesterday, when it touched the highest since Feb. 26. The U.S. currency was up 3 percent against the krone this week. Australia's dollar traded at 90.17 U.S. cents, close to a five- week low and on course for a 3.9 percent decline this week.

Fed officials announced on March 11 a program to swap $200 billion in Treasuries for debt including mortgage-backed securities. Yesterday, the Fed expanded collateral eligible for its auction of Treasuries to include bundled mortgage debt and securities linked to commercial-property loans.

Earlier this month, the Fed increased the size of separate funding auctions to $100 billion in March from a previously announced $60 billion.

The Fed said yesterday it had lent $28.8 billion to large U.S. securities firms under the program announced on March 16, its first extension of credit to non-banks since the 1930s.