The dollar declined against the euro on speculation that its biggest December rally since the European currency’s 1999 debut may be hard to sustain.

South Africa’s rand was the best performer versus the dollar among the 16 most-traded currencies as gold and other precious metals rallied as the dollar dropped.

“The market has got too far in terms of buying dollars, looking for higher rates”, said Andrew Wilkinson, senior market analyst at Interactive Brokers Group In. in Greenwhich, Connecticut.

The dollar shot 0.1 per cent to $1.4357 per euro in New York from $1.4337.

The US Currency appreciated to $.4218 on December 22, its strongest level since September 4. The dollar dropped 0.2 per cent to 91.45 yen, from 91.64. It touched 91.87 matching the highest since October 27. the euro traded at 131.34 yen, compared with 131.38.

The US currency has gained 4.4 per cent versus the euro in December, pairing its 2009 drop to 2.8 per cent as signs that the US economic recovery is gaining momentum prompted investors to take off bets against the currency.

“Most of the dollar shorts that were vulnerable have been cleared out over the last four weeks, which has given a more balanced feel to markets”, Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto, wrote in a research note to clients recently. A short position is a bet an underlying security will decline.

Hedge funds and larger speculators almost halved this months bets that the dollar will drop against its major rivals according to data compiled by the Commodity Futures Trading Commission in Washington.

Wagers that the dollar will depreciate against eight currencies, including the euro, yen, and pound, outnumbered those on its gain by 136,363 contracts as of December 15, compared with about 250,000 at the end of November.

The rand gained as much as 1.8 per cent to 7.4732 versus the dollar, the strongest level in a week, as a rally in gold and platinum boosted earnings prospects for South Africa, the World biggest producer of precious metals.

Bullion futures increased 1 per cent to $1.104.80 an ounce as the drop in dollar encourage investors to buy precious metals as an alternative investment platinum climbed 2.9 per cent to $1.474 an ounce.

The Franc traded at almost a nine-month high against the euro on speculation the Swiss National Bank will refrain from trying to limit its currency’s gains.

The Swiss currency fetched 1.4914 per euro after reaching 1.4850 three days ago, the strongest level since March 12. On that day, the central bank bought foreign currency to limit the Franc’s appreciation and support Switzerland’s economy.

Goldman Sachs  Group Inc. strategists said they were “stopped out” of a bet that the franc would fall against the Swedish Krona Investors who followed Goldman Sachs’s recommendation initiated in July would have lost about 3.7 per cent, the strategists wrote in an e-mail message recently.

Traders typically place stop losses at levels to protect themselves when a bet moves in the opposite direction.