The forecast manufacturing Sectors

The dollar traded near a record low against the euro before U.S. reports that are forecast to show manufacturing is slowing and the economic outlook is worsening.

The dollar weakened against 13 of the 16 most actively traded currencies before Federal Reserve Chairman Ben S. Bernanke's second day of testimony on the economy to Congress. The U.S. currency fell yesterday after the Fed trimmed growth forecasts for this year and next amid a recession in housing.

``The housing sector is going to drag on growth in the second half,'' said Chris Turner, head of currency research at ING Financial Markets in London. ``The market is happy to be short the dollar.'' Investors go short an asset when they anticipate it will decline.

Against the euro, the dollar traded at $1.3815 at 8:36 a.m. in New York, from $1.3803 late yesterday. It was at 122.10 yen, from 121.95. Turner said the dollar may touch $1.40 per euro in the next month.

The Conference Board's index of leading indicators, a gauge of U.S. growth over the next three to six months, may have fallen 0.1 percent in June after a 0.3 percent gain in May, according to the median forecast in a Bloomberg News survey. The Philadelphia Fed will say its index of the region's manufacturing fell to 13.8 this month from 18 in June, a separate survey showed. The reports are slated for release at 10 a.m. New York time and at noon, respectively.

Losses in the dollar may be limited after government data showed first-time jobless claims fell last week to the lowest in two months, a sign of strength in the U.S. labor market. Claims dropped by 8,000 to 301,000 in the week to July 14, the Labor Department said.

Fed Minutes

The dollar declined to a record low of $1.3833 per euro yesterday after Bear Stearns Cos. this week told investors in two of its hedge funds they will get little if any money back because of losses related to weakness in U.S. subprime mortgages.

The Fed will release minutes of its June 28 policy meeting at 2 p.m. today. Policy makers kept the benchmark rate at 5.25 percent last month. The rate compares with 4 percent in the euro zone, 5.75 percent in the U.K. and 0.5 percent in Japan.

Gains in the euro may be limited by speculation traders will sell the currency to protect barrier options that would expire should the euro appreciate further.

``The pace of the euro's rise may slow,'' said Katsunori Kitakura, chief treasury dealer at Chuo Mitsui Trust & Banking Co. in Tokyo. ``We're approaching euro option barriers in the $1.3840-$1.3850 zone. We may see selling to protect these.''

Carry Trades

The yen weakened against 15 of the 16 most traded currencies as investors added to so-called carry trades after Asian and European stocks rose and U.S. stock futures advanced.

In carry trades, investors use money borrowed in Japan to buy high-yielding assets elsewhere.

``Stock markets are rallying again, which is a sign that we're not at the edge of a giant risk reduction,'' said Martin McMahon, a currency strategist at Credit Suisse Group in London. ``The story is still upbeat for the global economy. That's helpful for carry trades and high yielders, and the yen will remain under pressure.''

S&P 500 index futures expiring in September rose 6.7 to 1561.5 in pre-open trading. Europe's Stoxx 50 increased 0.9 percent.

The yen weakened to 168.72 per euro, from 168.32 yesterday. It dropped to a record low of 168.95 on July 13.