NEW YORK (Bloomberg) — The dollar's biggest rally against the euro in almost eight years may prove fleeting as investors return their focus to slowing US growth, the world's largest foreign exchange traders say.

After a 3.6-percent surge last week against the single European currency, Bank of America Corp. advised clients to exit trades betting on more short-term gains. Morgan Stanley still forecasts the greenback will approach a record low by October as the US housing slump and credit-market losses keep the Federal Reserve from raising interest rates this year.

Barclays Plc in London and New York-based Merrill Lynch & Co. said trading patterns suggest the dollar's 5.1-percent gain in the past three weeks measured by an index of six major trading partners can't be sustained.

"I would not chase the dollar's strength versus the euro as the pair has moved beyond interest-rate support," said Sophia Drossos, a strategist in New York at Morgan Stanley, who also recommended closing out bets on the dollar versus the currencies of Malaysia and Singapore. "The dollar is not out of the woods. It will take the market a while to come around to our point of view."

The dollar strengthened to $1.5005 to the euro last week from $1.5564 on August 1, the biggest weekly increase on a percentage basis since January 2005. It surged 2.08 percent on August 8, touching $1.4998, the most since September 4, 2001, and the second largest rally since the euro was introduced in 1999.

Those gains sent the dollar above the $1.51 per euro yearend mean target of 39 analysts in a survey by Bloomberg. By the end of 2009, the dollar will likely strengthen to $1.40 per euro, based on the estimates. It gained 6.4 percent since hitting a record low of $1.6038 on July 15.

In addition to the gains against the euro, the dollar also appreciated 2.3 percent versus the yen to 110.18, the most in eight weeks. The euro lost 1.29 percent against the Japanese currency to 165.38, the biggest drop in 13 weeks.

US economic data suggest that a sustained recovery isn't imminent, said Robert Sinche, head of global currency strategy at Bank of America in New York. Interest-rate swaps indicate the currency should trade at about $1.54 per euro, said Sinche, who still forecasts that the dollar will strengthen to $1.45 per euro by the second half of next year.

The number of US home foreclosure filings more than doubled in the second quarter from a year earlier, according to RealtyTrac Inc., a seller of default data. Government reports this week may show retail sales fell 0.1 percent in July, the first decrease since February, and the U.S. trade deficit widened in June to $62 billion from $59.8 billion.

Morgan Stanley predicts the dollar will weaken to $1.60 by October, because the faltering US economy means the Fed is unlikely to raise rates anytime soon, Drossos said.

Rather then a vote of confidence in the outlook for the US economy, the euro's tumble on August 8 was triggered by traders paring bets the European Central Bank will lift borrowing costs after ECB President Jean-Claude Trichet said economic growth will be "particularly weak" through the third quarter, Trichet spoke after the central bank left the main refinancing rate at 4.25 percent.

Gross domestic product growth in the euro region is expected to slow to 1.7 percent this year and 1.3 percent in 2009, from 2.68 percent in 2007, according the median forecast in a Bloomberg survey.