NEW YORK (Bloomberg) — The dollar dropped to within a cent of the all-time low against the euro on concern losses at Fannie Mae and Freddie Mac may deepen even after policy makers said the companies aren't facing a government takeover.

The currency posted its third weekly decline in four weeks after President George W. Bush, Treasury Secretary Henry Paulson and Senate Banking Committee chairman Christopher Dodd on Friday damped talk of a government takeover of the two largest mortgage-finance companies. The greenback dropped against the yen and reached a 25-year low against the Australian dollar. Crude oil rose to a record above $147 a barrel.

"Risk aversion is biting the dollar given the concern surrounding Fannie and Freddie," said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York, who covers the 10 biggest industrialised nations. "There's still a lot of dollar-negative sentiment in the market."

The dollar fell 1.5 percent this week to $1.5938 per euro, from $1.5706 on July 4. It touched $1.5947 on Friday, the weakest since April 23. The dollar reached the all-time low of $1.6019 the previous day.

The US currency dropped 0.5 percent to 106.28 yen, from 106.80 on July 4. The yen fell one percent to 169.46 per euro, from 167.73, after touching 169.63, the highest since the European currency's 1999 debut. The Australian dollar appreciated 0.3 percent from a week earlier after touching 97.18 US cents yesterday, the strongest level since 1983.

South Korea's won rose 4.5 percent this week to 1,002.70 per dollar, the biggest gain since March 1998, as policy makers pledged to shore up the currency and tame inflation.

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six US trading partners, dropped 0.9 percent to 72.096 last week. It touched 71.795, the lowest level since April 23.

"The dollar cracked given the concern Fannie and Freddie are under heavy pressure," said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. "It's only a matter of time that the government either takes over or backstops them. It's going to put a lot of liability on the US government."

Fannie and Freddie lost almost half their value this week on speculation the companies don't have enough capital to survive the housing slump. The companies defended their finances.

Fannie Mae "has access to ample sources of liquidity, including access to the debt markets," Chuck Greener, a spokesman for the Washington-based company said in a statement on Friday. In a separate release, McLean, Virginia-based Freddie Mac said it's "adequately capitalised, highly liquid and an essential part of the nation's housing system."

"They are in a bit of an ugly quagmire right now," said Greg Salvaggio, a vice president of capital markets at Tempus Consulting in Washington, a currency-trading company. "There's a complete lack of confidence right now in the administration's ability to fix these problems."

Federal Reserve chairman Ben Bernanke is scheduled to give his semi-annual testimony on monetary policy and the economy before the Senate Banking Committee on July 15.