The dollar weakened for a fourth consecutive day against the euro on speculation a report will show U.S. home prices declined, bolstering the case for the Federal Reserve to keep interest rates near zero.

The dollar fell versus all but three of its 16 most-traded peers as economists said the S&P/Case-Shiller Index of property values will show its first year-over-year drop since January. The franc strengthened to a record against the U.S. currency amid optimism Switzerland’s growth will encourage its central bank to raise rates. South Korea’s won reached the strongest level in two weeks on bets Asian growth prospects are improving.

“The housing market in the U.S. is quite weak still and this could be a reason why we see a lower dollar today,” said You-Na Park, a currency analyst at Commerzbank AG in Frankfurt. “We are quite positive on the Swiss franc because we think the Swiss National Bank will hike rates next year” while the European Central Bank and the Fed will keep borrowing costs on hold, she said.

The dollar dropped 0.8 percent to $1.3267 per euro as of 7:06 a.m. in New York, after earlier touching $1.3275, the weakest level since Dec. 17. The U.S. currency declined as much as 1.2 percent to 81.83 yen, its lowest level since Nov. 12. It was 0.5 percent weaker versus the pound at $1.5499.

Home Prices

The gauge of residential real-estate values in 20 cities lost 0.2 percent from a year earlier, according to the median estimate of 17 analysts, before the S&P/Case-Shiller report is published today. The index was down 29 percent in September from its July 2006 peak.

U.S. home prices will fall 5 percent to 7 percent more before reaching a bottom in late 2011, Stan Humphries, chief economist of Zillow Inc., a provider of housing data, said in an interview yesterday on Bloomberg Television.

“Cheap housing prices imply the Fed is still far from the exit,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “It makes investors hesitate to buy the dollar, especially when the market thins at the end of the year.”

The Fed reiterated this month its commitment to keep borrowing costs low for an “extended period,” holding the target rate for overnight lending between banks at zero to 0.25 percent, where it has been since December 2008.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, fell 0.7 percent, dropping for a fourth day, the longest run of declines since Sept. 29.

Consumer Confidence

While figures today are expected to show U.S. property values fell, reports over the next three days will reveal an improvement in consumer confidence and employment, according to Bloomberg News surveys of analysts.

Consumer confidence rose to a seven-month high in December, according to the median estimate of economists surveyed before the Conference Board’s report today. Figures Dec. 30 will show initial jobless claims declined and pending home sales advanced, the surveys forecast.

The Swiss franc appreciated 1.8 percent against the dollar to a record 94.35 centimes. It strengthened 0.9 percent to 1.2526 against the euro.

The franc reached a record against the single currency last week as investors sought safety from Europe’s sovereign-debt crisis. Swiss National Bank President Philipp Hildebrand, who ended 15 months of intervening in foreign-exchange markets this year, may prove powerless to stop the currency from extending a record rally that he calls a “burden.”

Deflation Risk

SNB policy makers “made it very clear at their last monetary policy assessment on Dec. 16 that their main concern is price stability and that the risk of deflation has decreased,” said Ursina Kubli, currency analyst at Bank Sarasin & Cie in Zurich. “As a consequence, there is no need for them to intervene at the moment.”

South Korea’s currency gained for a second day after data showed Japan’s industrial production increased in November for the first time in six months.

Japan’s economic data “can be a factor that will help Asian currencies strengthen,” said Yun Se Min, a currency trader at Busan Bank in Seoul.

Japan’s factory output climbed 1 percent from October, when it fell 2 percent, the trade ministry said in Tokyo today.

The won climbed 0.1 percent to 1,147.90 per dollar. It earlier touched 1,146.50, the strongest level since Dec. 15.

Japanese Finance Minister Yoshihiko Noda said in a news conference in Tokyo today he will take bold actions if necessary in the currency market, calling the yen’s recent moves one sided.

Noda also said he will keep watching markets closely.