June 3 (Bloomberg) -- The dollar strengthened in Asia on speculation reports this week will show the U.S. economy is adding jobs, pushing the Federal Reserve closer to raising its key interest rate this month from a 45-year low.

Fed officials have said they want to see more job creation before the central bank increases its key rate from 1 percent. The number of first-time claims for unemployment insurance benefits probably fell last week and U.S. companies added workers to their payrolls for a ninth month, reports today and tomorrow will show, according to Bloomberg News surveys.

``It is a big risk to sell the dollar now when we could well see strong job data,'' said Koji Fukaya, chief strategist of the foreign exchange and treasury division at Bank of Tokyo-Mitsubishi Ltd., a unit of Japan's second-largest lender. ``A 25-basis point Fed hike in June looks a done deal and strong job data may push a 50-basis point increase onto the horizon.''

As of 12:52 p.m. in Tokyo, the dollar gained to $1.2187 per euro from $1.2216 late yesterday in New York, according to EBS, an electronic foreign-exchange dealing system, a second day of gains. The U.S. currency rose to 110.17 yen from 109.88.

Bank of Tokyo-Mitsubishi expects the dollar to gain to $1.15 per euro and 116 yen by September 30, Fukaya said.

First-time applications fell to 335,000 from 344,000 the week before, the Labor Department will probably report at 8:30 a.m. Washington time, according to the median of 36 forecasts in a Bloomberg News survey.

U.S. companies added 225,000 workers to their payrolls last month, the department will probably say Friday, fueled by an economy that's grown at the fastest pace since 1984, according to the median of 72 forecasts in a Bloomberg News survey. The projected increase would bring to almost 850,000 the number of jobs created since March, the best three-month period since the year 2000.

`Ready to Invest'

The yen's slide against the dollar may stall after energy ministers of Kuwait and Qatar said the OPEC plans to increase output to lower near-record prices, easing concern higher energy prices will slow the recovery of the world's second-biggest economy and helping lure overseas investors into Japan. OPEC is source of more than a third of the world's oil.

Overseas investors bought 233.7 billion yen ($2.1 billion) of Japanese shares during the week ended May 27, their first net purchases in four weeks, according to Ministry of Finance data.

Japanese companies increased capital spending in the first quarter by 2.9 percent from the last quarter of 2003 to meet rising overseas and domestic demand, the Ministry of Finance said in Tokyo.

``OPEC's statement puts less pressure on the yen, so we see some fresh buying,'' said Philippe Gernez, regional head of foreign exchange and derivatives in Singapore at Natexis Banques Populaires, the investment-bank unit of France's fifth-biggest lender. ``The market is very sure of the Japanese economic recovery. Everybody's ready to invest in Japan.''

Hidehiko Haru, a Bank of Japan policy board member, said the nation's economic recovery is sustainable and probably will help overcome declines in consumer prices, which have sapped the economy's growth. There is a ``big chance'' that Japan's six years of deflation will be over as early as next fiscal year, Haru said in Aomori, northern Japan.

Interest Rates

The dollar has rebounded 6.1 percent against the euro from its record low of $1.2930 reached on Feb. 18 on prospects the U.S. economy is accelerating and the recovery of the jobs market will prompt the Fed to raise interest rates as early as June.

Fed Chairman Alan Greenspan said in a letter dated May 14 to Senator Paul Sarbanes, a Maryland Democrat, that today's low interest rates ``must be returned to a more neutral setting at some point.''

A gauge of U.S. manufacturing unexpectedly rose last month as increased demand prompted more factories to hire than at any time in 31 years, an industry report showed yesterday. The Institute for Supply Management's factory index for May rose to 62.8 from 62.4 in April, while the employment index increased to 61.9, the highest since April 1973, from 57.8.

The Fed's key interest rate is at 1 percent, half that offered by the European Central Bank. The ECB will probably keep its interest rate at 2 percent today, all 27 economists surveyed by Bloomberg News said. The bank will announce its rate decision at 1:45 p.m. in Frankfurt, followed by a press conference by ECB President Jean-Claude Trichet 45 minutes later.

In other trading, the British pound fell to $1.8316 from $1.8346 late yesterday in New York. The dollar was at 1.2526 Swiss francs from 1.2503.

To contact the reporter on this story: Taizo Hirose in Tokyo at Hirose2@bloomberg.net

Last Updated: June 3, 2004 00:08 EDT