Oct. 11 (Bloomberg) -- The dollar may decline for a third week against the yen as traders bet the Federal Reserve will raise its benchmark interest rate only once more this year.

Forty-five percent of the 78 traders, strategists and investors polled on Oct. 8 from Tokyo to New York said to sell the dollar versus the yen, up from 41 percent a week ago. Thirty percent said to buy and the rest advised holding.

The dollar fell the most in four months against the yen and tumbled versus the euro on Oct. 8 after a U.S. government report showed employers hired fewer workers than economists forecast. Slowing job growth means an expected rate increase by the Fed in November will probably be the year's last, said Sophia Drossos, a currency strategist at Morgan Stanley in New York.

``News seems to be lining up in favor of dollar bears,'' said Drossos, who worked at the Fed from 1997 to 2003 and helped manage the central bank's foreign-exchange portfolio. Slowing job growth ``does raise doubts about how aggressively the Fed will raise rates.''

The central bank lifted the target rate for overnight loans between banks on Sept. 21 to 1.75 percent from 1.5 percent, and said it plans further increases at a ``measured'' pace. Morgan Stanley expects the Fed to raise its target a quarter point on Nov. 10 and then leave the rate unchanged in December.

`Have to Wait'

The dollar fell 0.9 percent last week to 109.53 yen late on Oct. 8 in New York, according to EBS, an electronic foreign- exchange trading system. Versus the euro, the dollar was little changed on the week at $1.2409.

Survey participants were split on whether to buy or sell the dollar against the euro. A majority of those who said to buy the dollar work in Asia and made the recommendations before the release of the September U.S. jobs report.

Federal funds futures, bets on what the rate targeted by the central bank will average in a particular month, showed traders pricing in about a 30 percent chance of a rate increase to 2.25 percent in December, down from 44 percent. The rate on the November contract was 1.90 percent, suggesting traders see a about an 85 percent chance a quarter point increase next month.

``We'll get an increase in November and then maybe a pause,'' said Daragh Maher, a currency strategist in London at Calyon, the investment banking unit of Credit Agricole SA. ``Those who were bullish on the dollar and the U.S. economy will have to wait.''

Slide May Accelerate

This year, the dollar is up 1.5 percent against the euro and 2.1 percent compared with the yen. Demand for the dollar waned after the Labor Department said the economy added 96,000 jobs last month. Economists expected September job growth of 148,000, based on the median estimate in a Bloomberg survey.

The dollar's slide may accelerate should a government report on Oct. 14 show the U.S. trade deficit widened in August, said Larry Kantor, head of economics and market strategy at Barclays Capital Inc. in New York.

``The employment report was disappointing, and if you get a wider trade deficit that could weigh on the dollar,'' said Kantor, a former Fed economist. ``This isn't good news.'' He expects the U.S. currency to weaken to 108 yen in a month.

The trade deficit, the amount by which imports to the U.S. exceed exports, may increase to $51.5 billion in August, based on the median estimate of 45 economists in a Bloomberg survey. That would be the second largest shortfall ever and higher than July's $50.1 billion.

Focus on Deficit

Widening deficits in the current account, the broadest measure of trade, may cut demand for the dollar, Robert McTeer, president of the Dallas Fed, said in a speech in New York on Oct. 7. The gap was a record $166.2 billion in the second quarter.

Foreign investors now ``finance'' the current-account gap, McTeer said. ``Theoretically, some day that process will come to an end, the flows will turn against us and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar.''

McTeer joined San Francisco Fed President Janet Yellen and Kansas City Fed President Thomas Hoenig, who have expressed concern in the past month about the current-account deficit. The central bank doesn't set currency policy, which is managed by the Treasury.

``With Fed speakers bringing this up more regularly, it is becoming more of a focus for the market,'' said Drossos at Morgan Stanley.

German Confidence

Forty-one percent of those surveyed by Bloomberg said to sell the dollar versus the euro this week and 40 percent said to buy it. The remainder advised holding the dollar.

Any decline in the U.S. currency may be limited by expectations investor confidence in Germany's economy is waning. The Mannheim, Germany-based ZEW Center for European Economic Research may say tomorrow its index of institutional and analyst sentiment probably fell to 36 from 38.4 last month, according to the median forecast of economists polled by Bloomberg.

``If oil prices were to remain high, or even increase further, it could damage the strength of the recovery,'' in the euro region, European Central Bank President Jean-Claude Trichet, said at a press conference on Oct. 7 in Brussels. He spoke after the ECB kept its benchmark rate at 2 percent. The ECB hasn't raised rates since 2000.

Crude oil for November delivery rose 64 cents, or 1.2 percent on Oct 8., to close at $53.31 a barrel on the New York Mercantile Exchange. Oil reached a record $53.40 earlier in the day. Prices are up 79 percent from a year ago.

Japanese Economy

Sentiment toward the yen improved last week following a gain in Japan's index of leading economic indicators and a pick-up in machinery orders, the survey indicated.

``The yen is gaining some support, we're seeing the economic data start to improve and that's providing a bit of a boost,'' said Ian Stannard, a strategist in London at BNP Paribas SA.

Japan's index of leading economic indicators rose to 72.2 in August from 60 percent the month before, the government said on Oct. 7. It was the 12th month above 50 percent, which signals expansion in three to six months. Machinery orders increased 3.1 percent in August after an 11.3 percent decline in July, Japan's Cabinet Office said on Oct. 8.

``Japan's economy is undergoing a solid and sustained expansion that will lead to a stronger yen, despite the rise in oil prices,'' Barclays' Kantor said. ``The economy is not as weak as some of the older numbers suggest.''

Following are the results of Bloomberg's currency survey:

                      BUY      SELL      HOLD

Euro                   32        31        15
Yen                    35        24        19
British pound          17        38        22
Swiss franc            31        20        23
Australian dollar      38        17        21

Euro versus yen       BUY      SELL      HOLD

                       22        28        16

To contact the reporter on this story: Joshua Krongold in New York at jkrongold2@bloomberg.net.

Last Updated: October 10, 2004 12:46 EDT