The dollar may extend a two-year decline against the euro on speculation a slowing economy will make American assets less attractive to investors.

The American currency fell versus 14 of the 16 most-actively traded currencies in 2007 as the Federal Reserve reduced borrowing costs three times to temper the worst housing slump since 1991.

The unemployment rate probably increased last month to the highest since July 2006, according to the median forecast in a Bloomberg News survey before the government reports the data on January 4.

“The U.S. economy will be pushed close to the recession level,” the vice-president of capital markets in Washington at currency-trading company Tempus Consulting, Greg Salvaggio, said. “There will be further dollar weakness in early 2008.”

The dollar lost 9.5% against the euro in 2007, dropping to $1.4588, following a 10.2% drop in 2006. It increased 0.9% yesterday after a report from the National Association of Realtors showed purchases of existing homes unexpectedly rose in November.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the dollar versus the euro, compared with those on a gain — so-called net shorts — fell to 30,641 in the week to December 25, from 31,149 the previous week and a record of 120,000 in May, figures from the Washington-based Commodity Futures Trading Commission show.

American payrolls rose by 70,000 last month after increasing 94,000 in November, according to the median forecast of economists surveyed by Bloomberg before the Labor Department’s January 4 report. The jobless rate probably increased to 4.8% from 4.7% in November.