Jan. 6 (Bloomberg) -- The dollar held near its lowest ever against the euro in Asia after Atlanta Federal Reserve President Jack Guynn yesterday suggested the central bank won't raise interest rates soon because of signs inflation will remain tame.

The U.S. economy may grow as much as 4 percent this year and there is little sign of a ``significant'' rise in inflation that would lead to higher interest rates, Guynn, who does not vote on Fed policy this year, told the Rotary Club of Atlanta. The dollar yesterday fell to a record against the 12-nation currency after ending its worst year since the euro's 1999 debut.

``The weakness of the U.S. dollar is exactly what the Fed and the U.S. administration like and want to continue,'' said Peter Clay, currency strategist in Sydney at ABN Amro Holding NV. ``Anytime a Fed official comes out and says ``time is on our side' regarding rates, it is going to weigh on the dollar.''

The dollar was at $1.2682 against the euro at 12:54 p.m. in Tokyo from $1.2677 late yesterday in New York, where it dropped to as low as $1.2697, according to EBS prices. Against the yen, the U.S. currency was at 106.13 from 106.20. It yesterday weakened as far as 106.06 yen, the lowest since September 2000.

The dollar may fall to $1.3 per euro and 102 yen in the next few weeks, Clay said.

Demand for the dollar has dwindled in the past year as interest rates in the U.S. stayed lower than in Europe, discouraging some international investors from buying government debt sold to finance a record U.S. budget deficit.

No Crisis

The Fed's benchmark interest rate, at a 45-year low of 1 percent, is half that of the European Central Bank. The yield on the 1 7/8 percent U.S. Treasury note maturing in December 2005, more sensitive than longer-maturity debt to changes in the central bank's rate, was 1.92 percent, compared with 2.58 percent for the German note of similar maturity.

Guynn said the current 1 percent overnight lending rate target is ``very accommodative.'' While the Fed will eventually have to consider raising it as growth increases, ``the timing of policy actions should not hinge on `calendar time,' but rather `economic time,''' he said.

The dollar fell yesterday after Federal Reserve Governor Ben S. Bernanke Sunday said the risk of a dollar ``crisis'' is ``quite low.''

``The depth of international financial markets and the integration of global financial markets means that the risk of a dollar crisis is quite low -- not zero -- but quite low,'' Bernanke said.

Orderly Decline

U.S. Treasury Secretary John Snow told Bloomberg News last month the currency's drop had been ``orderly.'' While he and President George W. Bush regularly endorse a ``strong dollar'' they say they want markets, not governments, to set exchange rates.

``The best thing for the Bush administration to do: just let the dollar fall,'' Michael Rosenberg, global head of foreign exchange research at Deutsche Bank in New York, told Bloomberg News in a televised interview. ``A weaker dollar is going to make U.S. industry more competitive. This is good news for the U.S. economy.''

Deutsche Bank, Germany's biggest bank by assets, expects the dollar to drop to $1.3 versus the euro and 99 yen in 12 months. The U.S. currency has fallen 18 percent against the euro in the past 12 months. Deutsche's Rosenberg said the dollar's decline has been ``relatively orderly.''

Yen Selling

Any gain in the yen to beyond 106 per dollar may stall on speculation Japan will sell its currency to prevent a stronger yen from undermining the nation's economic recovery.

``It's just a matter of time before the yen gains to above 106,'' said Tohru Sasaki, a currency strategist in Tokyo with J.P. Morgan Chase & Co., and a former Bank of Japan official. ``That will probably prompt Japanese authorities to step up efforts to protect 105.''

The Bank of Japan, at the behest of the Ministry of Finance, yesterday sold its currency both in Tokyo and London trading, according to traders who deal with the central bank.

``We will act as needed to counter speculative movement,'' in the yen, Zembei Mizoguchi, Japan's vice finance minister for international affairs, told reporters. ``There is a need for us to respond to this with determination.''

Japan spent a record 20.1 trillion yen ($189 billion) last year through Dec. 26 to stem the yen's rise because a stronger local currency erodes the value of overseas sales of exporters when earnings are converted into yen.

The yen may gain beyond 106 within two days, before trading at about 105.50 over the following few weeks, Sasaki said.

In other trading, the dollar was at 1.2323 Swiss francs from 1.2320 francs. The British pound held at $1.8071.

Last Updated: January 5, 2004 23:01 EST