The U.S. currency advanced even as the Commerce Department said the trade deficit widened to a record in September. The dollar has climbed about 13 percent against the euro and the yen this year as the Fed lifted its benchmark rate seven times while the European Central Bank and Bank of Japan kept rates on hold.

``The market is viewing this as an opportunity'' to buy dollars, said Todd Elmer, a currency strategist in New York at Citigroup Inc., the world's biggest bank. ``The interest-rate spread is widening in favor of the U.S. dollar.''

Against the euro, the dollar strengthened for a sixth straight day to $1.1729 from $1.1765 yesterday as of 1:15 p.m. in New York, according to electronic foreign-exchange dealing system EBS. It weakened to $1.1798 immediately after the trade report was released. The dollar climbed to 118.06 yen, from 117.52, approaching its highest level since August 2003.

The University of Michigan's index of consumer sentiment rose to 79.9 this month from 74.2 in October, a 13-year low. The reading was expected to be 76.5, according to a median forecast of 56 economists in a Bloomberg survey.

The trade deficit, the amount by which imports exceed exports, expanded to $66.1 billion in September from a revised $59.3 billion the month before. Economists expected a shortfall of $61.5 billion, based on the median of 66 estimates in a Bloomberg survey. Deficit estimates ranged from $58 billion to $65.5 billion.

`Appetite' for Dollars

``Under normal circumstances with this kind of figure, you would expect to see significant dollar weakening,'' said Jens Nordvig, a global markets economist in New York at Goldman Sachs Group Inc. ``The fact that you're not seeing that seems to indicate that people have quite a bit of appetite to take on long dollar positions.''

Goldman Sachs, the world's third-largest securities firm, forecasts the dollar will drop to $1.30 against the single currency in 12 months, in part because of the widening trade deficit. Deutsche Bank AG, the biggest currency trader, predicts the dollar will drop to $1.25 per euro by March, as does Citigroup.

Some traders also sold the yen after Hiroshi Watanabe, Japan's top currency official, told reporters in Tokyo today that the current exchange value of Japan's currency isn't too weak and the Ministry of Finance is watching to see if it reflects fundamentals,.

``We don't see the current level of the yen, about 117 to the dollar, as particularly weak,'' Watanabe said. ``It's not at a level that requires us to take action.''

Trade Deficit

A wider U.S. trade gap means more dollars need to be converted to other currencies to pay for imports and may raise concern about the current account, the broadest measure of trade. The U.S. currency fell for three years through December amid record trade and fiscal deficits combined with the lowest interest rates in four decades.

``If interest rates continue to rise, inflows of foreign investment should continue to stay positive,'' which offsets the trade deficit and helps the dollar, said Matthew Lifson, chief currency trader at PNC Capital Markets in Pittsburgh.

`Every Six Weeks'

St. Louis Fed President William Poole yesterday signaled the U.S. central bank will keep raising rates. Inflation risks are still ``skewed toward the high side,'' Poole told reporters following a speech yesterday at Lindenwood University in St. Charles, Missouri.

``The interest-rate story is why the dollar has been so strong in the last couple months,'' said Brian Rose, a currency strategist in New York at Bank of Tokyo-Mitsubishi. ``Investors want to buy the dollar because the interest rate goes up every six weeks.''

The Fed on Nov. 1 raised its target for overnight loans between banks by a quarter-percentage point to 4 percent, its 12th increase since June 2004.

The U.S. central bank will lift the rate beyond the first quarter next year, to a peak of 4.75 percent by June, according to the latest Bloomberg survey of economists, published yesterday. The forecast is a quarter-percentage point more than projected last month.

The extra yield on 10-year U.S. Treasury notes over similar-maturity German debt was 1.09 percentage points. The gap has averaged 0.46 percentage point over the past two years. Ten- year Treasuries yield 3.07 percentage points more than equivalent Japanese bonds.

`Strong Vigilance'

The euro weakened even as a government report today showed that France's economy expanded 0.7 percent in the three months through September from the previous quarter, the fastest pace in more than a year.

ECB Chief Economist Otmar Issing said yesterday the bank could act ``at any time,'' and a rate increase wouldn't hurt growth in the euro region. Bank President Jean-Claude Trichet said Nov. 7 that ``interest rates can move any time.''

The ECB said in its monthly bulletin that ``strong vigilance'' is needed as higher energy costs and an economic revival increase the risk of faster inflation. The bank has kept its main rate on hold at 2 percent for more than two years.

The argument for the ECB raising rates is ``pretty weak'' because of the challenges facing Europe, said Jim O'Neill, chief economist at Goldman Sachs in London. O'Neill also said yen weakness is ``one of the big mysteries of the year.'' He predicted that in 12 months the yen may rise to near 100 per dollar and to ``its old historical highs of 80'' in a few years.

The dollar's gains today came as concern eased that demand from overseas investors, who own about half of all U.S. government debt, is declining.

Indirect bidders, the class of investors that includes foreign central banks, bought 55.6 percent of the $13 billion in 10-year Treasury notes sold by the government today, up from 22.1 percent in September. Yesterday, indirect bidders bought 21.1 percent of the $13 billion in five-year Treasury notes sold -- less than half the 45.8 percent last month.