The currency also climbed against the yen after the Federal Reserve separately authorized the companies, which buy or finance almost half the $12 trillion of U.S. mortgages, to borrow directly from the central bank. South Africa's rand rose to a six-week high as a rally in European stocks and U.S. equity futures led investors to buy higher-yielding assets.
The dollar climbed 0.5 percent to $1.5863 per euro at 8:48 a.m. in New York, from $1.5938 on July 11. It dropped to a record of $1.6019 on April 22. The U.S. currency increased 0.3 percent to 106.61 yen, from 106.28. The euro fell 0.2 percent to 169.10 yen, from 169.46, after touching 169.75, the strongest level since the 15-nation currency debuted in 1999.
The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, climbed 0.2 percent to 72.214 after three days of losses. U.S. 10-year Treasuries fell.
The index may decline to a record low of 70.70 should it close below so-called support at 71.82, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc., the world's biggest securities firm. Support is where buy orders are clustered.
The U.S. currency strengthened as Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in Fannie and Freddie and to increase their lines of credit with the department from $2.25 billion each. The U.S. central bank authorized the companies to borrow directly from the New York Fed.
The plans for Fannie and Freddie ``alleviated some near- term concerns of impending problems for those companies,'' said Kamal Sharma, a currency strategist in London at JPMorgan Chase & Co. ``The market has taken that as a positive to infer that there's little less financial risk to the system, and that's been a boost for the dollar.''
Global banks and securities firms have reported losses of about $400 billion as the subprime-mortgage market collapsed. Fannie and Freddie shares lost about half their value last week on concern they will run short of capital.