The dollar approached an all-time low against the euro on Tuesday on market expectations for an interest rate cut next week, even as Federal Reserve Chairman Ben Bernanke offered no hints on Fed monetary policy in a speech in Germany. The euro rose to US$1.3832 in late New York trading from US$1.3808 late Monday, near the 13-nation currency's all-time high of US$1.3852, reached in July.

The British pound also was higher, climbing to US$2.0317 from US$2.0279 Monday.

However, the dollar rose to 114.30 yen from 113.56 yen.

The dollar dropped sharply against all three currencies Friday after the U.S. Labor Department reported that employers reduced payrolls by 4,000 in August, dashing economists' predictions that payrolls would grow by 110,000.

That report has strengthenedspeculation that the Fed will cut interest rates at its September 18 meeting, prompting a Wall Street rebound Tuesday. A cut from the current rate, 5.25 per cent, would be the first reduction in four years.

Lower interest rates, used to jump-start the economy, can weaken a currency by giving investors lower returns on investments denominated in it.

Credit policy

Most economists expect the Fed to ease credit policy. The debate has shifted to how much, however, 25 basis points or 50 basis points.

Fed governors who have spoken over the past few days appear split on the direction of the economy, with some saying that the economy will weaken over the next few quarters and some saying that more data needs to be seen before the central bank can make a decision.

Bernanke gave no clues as to the Fed's direction in his speech Tuesday to Germany's Bundesbank, instead speaking on "global imbalances" in trade.

"We hoped Bernanke would give some insights into future rate policy, but that did not come into fruition," said Michael Woolfolk, senior currency strategist at the Bank of New York. A report Tuesday from the Commerce Department that showed the U.S. trade deficit declining slightly appeared to have little effect on the dollar.

The deficit edged down 0.3 per cent in July to US$59.2 billion (€42.82 billion), compared with US$59.4 billion (€42.97 billion) the previous month - a reading that was in line with expectations.

- AP