Dollar bounce as yield play increases/ UK disappoints.

The dollar reached a six-week high against the euro yesterday as a report showed U.S. home construction surged last month, reinforcing expectations for two more interest-rate increases this year.

The dollar also gained versus the yen before Federal Reserve Chairman Ben S. Bernanke addresses Congress for a second day, after saying a sustained economic expansion may require higher rates to limit inflation. Traders raised bets the Fed will add to its 14 straight increases in borrowing costs since mid-2004.

Interest-rate futures show traders are pricing in a 98 percent chance the Fed will raise its target rate by a quarter- point to 4.75 percent on March 28. The odds of another increase on May 10 are 65 percent.

Higher interest rates in the U.S. have bolstered the appeal of owning the country’s financial assets over those of Europe, where the European Central Bank’s key rate is 2.25 percent, and Japan, where borrowing costs are almost zero.

In other news, U.K. retail sales fell the most in 13 months in January as consumers in Europe’s second-biggest economy reined in their spending after a holiday splurge.

Sales dropped 1.3 percent from December, after five months of gains, exceeding the median estimate of a 0.2 percent decline. The annual increase in sales slowed to 1.3 percent from a revised 4.3 percent.

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