April 15 (Bloomberg) -- The dollar rose against the euro and the yen for the third day this week on speculation reports today will show U.S. jobless claims held close to a three-year low and a gauge of manufacturing in Philadelphia climbed.

Larger than forecast increases in U.S. retail sales and consumer prices this week are increasing speculation the Federal Reserve will lift its benchmark interest as soon as next quarter from 1 percent, the lowest since July 1958.

``We're on the verge of rises in U.S. interest rates so there is a shock to the system,'' for investors, said Ian Gunner, head of foreign-exchange research in London at Mellon Financial Corp., which manages about $612 billion. ``The dollar will strengthen further.'' He expects the Fed to raise its target rate by a quarter of a percentage point in August.

The U.S. currency climbed to 108.86 yen at 10:23 a.m. in London from 108.62 late in New York yesterday, according to EBS, an electronic foreign-exchange dealing system. Against the euro, it advanced to $1.1931 from $1.1960.

The yen was also hurt as Japan's benchmark Nikkei 225 Stock Average had its biggest slide this year, dropping 2.5 percent. The index's 55 percent gain in the past 12 months has helped drive the yen up 10.7 percent versus the dollar in the period.

In the U.S., a report scheduled for release at 1:30 p.m. London time will probably show that the number of people claiming initial jobless claims totaled 335,000 in the week ended April 10, according to the median of 30 economists Bloomberg surveyed.

Mellon's Gunner said the dollar may strengthen to $1.1750 against the euro and 110 versus the yen in coming weeks.

`Initial Rebound'

The dollar has risen 2.2 percent against the yen and 1.2 percent versus the euro this week. Strategists including Karen Jones at Commerzbank AG in London say the U.S. currency is close to a key technical level against the euro.

Against Europe's common currency, the dollar is near the $1.1860 to $1.1845 area, a 50 percent reversal of the euro's climb from its low in September 2003. Jones wrote in a report she expects an ``an initial rebound'' in the euro from here.

The dollar's high for this year against the euro is $1.1867, which it reached yesterday.

Money Leaves Japan

Traders may also have sold the yen as Japanese investors last week bought 200 billion yen of foreign equities and 1.5 trillion yen of foreign bonds, according to research from J.P. Morgan Chase & Co.

At the same time, Ministry of Finance data showed investors from abroad bought 457.8 billion yen of stocks during the week that ended April 8. Fund managers outside Japan have been net buyers of Japanese stocks for 13 out of 14 weeks this year.

Even as foreign investors remain buyers of Japanese stocks, ``the net portfolio outflow would still have amounted to around 500 billion yen last week,'' J.P. Morgan wrote in a report to clients, a copy of which was e-mailed to Bloomberg News.

The dollar is up this week against a range of currencies including the British pound, the Australian dollar and the Swiss franc as investors speculate signs of job growth and inflation in the U.S. will prompt the Fed to raise rates.

A report yesterday showed U.S. consumer prices, excluding energy and food, rose 0.4 percent in March, the most in two years. A report on April 2 showed that the U.S. economy created 308,000 jobs last month.

Interest Rates

The yield on the September Eurodollars futures rose 7.5 basis points to 1.615 percent in Singapore, and the yield on the December contract climbed 9.5 basis points to 2 percent.

Expectations of a move by the Fed is ``driving up the dollar, and that's going to be the story,'' said Tim Mazanec, a senior foreign exchange strategist in Boston at Investors Bank & Trust Co., custodian for $1.1 trillion of investor assets.

Lehman Brothers Holdings Inc. said the Fed may raise its target rate from 1 percent as soon as September, followed by another increase in December, after government reports showing gains in employment, retail sales and consumer prices.

The U.S. Treasury's semi-annual foreign-exchange report to Congress is scheduled for release today. Under a 1988 law, the Treasury department is required to report twice a year on whether any countries are manipulating their currencies such as by weakening them to help exporters.

``Japan won't be criticized, especially because it looks like it refrained from yen selling'' since the middle of March, said Toshihiro Azuma, manager of financial products and marketing department at Sumitomo Trust & Banking Corp. in Tokyo. ``I see little impact on the yen coming from the report.''

To contact the reporter on this story: Richard Blackden at rblackden@blomberg.net

Last Updated: April 15, 2004 05:31 EDT