The greenback fell against European currencies as the government agreed to provide a $138 billion lifeline to Bank of America Corp together with the release of U.S. foreign treasury buys which showed investors sold U.S. Treasury bonds in November for the first time since August 2007, eroding safe-haven demand of dollar.

Treasury Secretary Henry Paulson described a plan to remove toxic assets from lenders’ balance sheets, encouraging investors to sell the Japanese yen and buy higher-yielding assets. Paulson said that ‘a lot of work has been done on an aggregator bank’ and other ways to deal with ‘illiquid assets’. Democratic leaders in the U.S. House of Representatives unveiled an $825 billion tax cut and spending package they hope will help Obama reverse the economic slump.

Foreign selling of U.S. Treasuries amounted to $22.88 billion compared with inflows of $32.87 billion the previous month. The single currency rallied against the Japanese yen from 117.83 to 120.75, the most in a month. Euro rose versus the dollar from 1.3110 to 1.3345. Total net sales of long-term equities, notes and bonds were $21.7 billion, compared with selling of a revised $400 million in October.

Japan’s currency weakened versus the Australian and New Zealand dollars. The greenback fell against the Japanese yen from 90.92. The British pound rose initially to 1.4982 on dollar’s broad based weakness and tumbled later in the day to 1.4656 on active cross selling in sterling in thin U.S. session after shares in UK bank Barclays tumbled amid worries about banks' capital and outlook.

Next week will see the release of Japan’s tertiary industry index and consumer confidence, U.K. CPI and RPI and German ZEW index on Tuesday; German PPI, U.S. average earnings, claimant count, ILO unemployment rate and PSNCR and NAHB housing market index on Wednesday; Japan’s tankan big manufacturing and trade balance, eurozone industrial orders, U.S. building permits, housing starts and jobless claims on Thursday; Japan’s all industry index, German manufacturing and services. PMI, U.K. GDP and retail sales, U.S. new home sales, new home change, U.S. leading indicators on Friday.