US-$ zu EURO. / Arbeitslosenzahlen beeinflussen

April 7 (Bloomberg) -- The dollar gained the most in two weeks against the euro after a government report showing strength in the U.S. job market added to speculation the Federal Reserve will lift interest rates twice more.

The U.S. currency climbed as traders increased bets the Fed will raise rates two more times to 5.25 percent after 15 boosts since June 2004. Ten-year Treasury note yields rose to the highest since 2002, widening the U.S. yield premium relative to Europe and Japan and giving the dollar further support.

``Growth will be sustained longer than expected,'' said Don Alexander, director of fixed-income and currency strategy in New York at Citibank Private Bank, which has about $100 billion in assets. ``The Fed has more work to do; dollar strength will continue until later this year.''

The dollar advanced to $1.2133 per euro at 10:07 a.m. in New York, from $1.2229 yesterday, for its largest jump since March 23. It was little changed at 117.74 yen from 117.75 yesterday. Today's increase pared a weekly loss against the euro, leaving the dollar down 0.1 percent this week.

U.S. employers added 211,000 workers in March, the Labor Department said, compared with the median forecast in a Bloomberg survey for 190,000 new jobs, and down from 225,000 in February. The jobless rate fell to a four-year low of 4.7 percent from 4.8 percent.

``There is enough strength in this report to suggest at least one more hike from the Fed and possibly more,'' said Nick Bennenbroek, a currency strategist at Brown Brothers Harriman & Co. in New York. The dollar may rise to $1.15 per euro and 121 yen this year, he said.

Higher Odds

Interest-rate futures show traders are certain the Fed will lift its benchmark to 5 percent at its next meeting on May 10, from 4.75 percent at present. Traders see 42 percent odds of another increase to 5.25 percent in June, up from 36 percent before the report's release.

Higher benchmark rates would widen the U.S. yield advantage over the euro region and Japan. The dollar gained about 14 percent against the euro and the yen last year as the Fed lifted borrowing costs eight times, in part to tame inflation.

At 4.92 percent, 10-year U.S. Treasury notes yielded 305 basis points, or 3.05 percentage points, more than 10-year Japanese government bonds, up from 303 basis points yesterday. Ten-year Treasuries offered 103 basis points over similar- maturity German debt, compared with 101 basis points yesterday.

Trichet Signal

``At the end of the day, it continues to suggest that the U.S. labor market is firm,'' said Steven Englander, chief currency strategist for the Americas at Barclays Capital Inc. in New York, of the U.S. labor report. An eventual halt to Fed increases will contribute to a decline in the dollar to $1.30 in 12 months, he said.

The euro fell yesterday from a record against the yen and a seven-month high versus the dollar after European Central Bank President Jean-Claude Trichet said policy makers are unlikely to raise interest rates next month. Some traders had speculated a rate increase was imminent after a surge in German business confidence and manufacturing across the euro region.

The ECB yesterday kept its benchmark rate at 2.5 percent, as expected. The Bank of Japan has kept rates near zero percent since March 2001.

Traders pared bets on higher ECB rates after Trichet's comments. The yield on the three-month Euribor futures contract due December 2006 has fallen 8 basis points in the past two days to 3.41 percent.

The contracts, which settle to the three-month interbank offered rate for the euro, yielded an average 10 basis points more than the ECB's target rate in the past five years.

Above 3 Percent

The ECB probably won't raise its benchmark rate above 3 percent, Gernot Nerb, chief economist at Germany's Ifo economic institute, said in an interview today.

``Investors sold the euro in disappointment as Trichet said there won't be a May rate hike,'' said Etsuko Yamashita, a currency analyst and chief economist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan's third-largest lender by assets. ``But this is only a delay. There will be a rate rise in June,'' pushing the euro to $1.25 by June 30, she said.