The euro rose against the dollar after its biggest two-day decrease since 2005 as a European Central Bank policy maker said he can't rule out more interest- rate increases after July.

The 15-nation euro strengthened as ECB council member Athanasios Orphanides said additional tightening may be warranted. ECB executive board member Juergen Stark earlier discounted a “series'' of increases. The Swiss franc appreciated against all of its major counterparts as a drop in U.S. stocks led investors to buy back the currency, used to fund bets on higher-yielding assets.

The euro rose to 1.5587 in New York afternoon session, from 1.5441 yesterday. The U.S. currency dropped to 106.56 versus yen, from 107.76. The euro rebounded after early selloff fm 166.98 to 165.67 versus yen. The Swiss franc advanced to 1.0309 per dollar, from 1.0450.

The greenback surged 2 percent against the euro on June 9- 10, pushing the U.S. dollar index traded on ICE futures in New York above its 90-day moving average, a sign of an excessive move. The last time the index traded above that average, on June 3-4, the dollar fell more than 2 percent against the euro the next two days.

Trading in currency-related futures and options was the second-highest ever yesterday on the Chicago Mercantile Exchange. The biggest trading day was Dec. 8, 2006.

The Canadian dollar rose the most against the greenback in two weeks on speculation the Bank of Canada will raise interest rates this year. Policy makers unexpectedly left the target lending rate at 3 percent yesterday to contain inflation. Canada's dollar strengthened to 1.0153 per U.S. dollar, from 1.0324 yesterday.

The Standard & Poor's 500 Index fell 1.2 percent, while the price of crude oil increased more than $5 a barrel to $136.44 in New York. Oil reached a record $139.12 a barrel on June 6.

Bank of America Corp. lowered its forecast for the yen, saying the Bank of Japan will probably maintain a neutral stance on its 0.5 percent target lending rate while U.S. and European policy makers signal increases. The yen will fall to 108 per dollar by Sept. 30, according to the firm. The previous forecast was 105.

The euro rose last week the most against the dollar since late March after ECB President Jean-Claude Trichet said policy makers may increase the 4 percent main refinancing rate by a quarter-percentage point next month to curb inflation, which is running at the fastest pace in 16 years.

Stark damped speculation on a series of interest-rate increases, saying in an interview yesterday in Chatham that policy makers have signaled only that they may raise borrowing costs in July.

Federal Reserve Vice Chairman Donald Kohn said today at a conference hosted by the Boston Fed in Chatham that the central bank needs to counter any sign that the public is beginning to expect faster increases in consumer prices. Stark is also speaking at the conference.

Futures on the Chicago Board of Trade showed a 51 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point at its Aug. 5 meeting, compared with 58 percent odds yesterday. The dollar has fallen 11 percent against the euro and 9 percent versus the yen since Sept. 18, when the Fed began to lower the target rate from 5.25 percent.

The dollar remained lower against the euro as the Fed's Beige Book, a survey of regional economic performance, said growth was “generally weak” in April and May as consumer spending slowed, while manufacturers in “several” regions passed on higher raw materials costs to customers.

On Thursday, economic data releases including Australia employment data, Eurozone industrial orders (M/M and Y/Y), U.S. retail sales data, jobless claims, export price index, import price index and business inventories. Federal Reserve Chairman Ben Bernanke will also speak at 15:30GMT.