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Paulson says strong dollar in US interests

OSAKA - US Treasury Secretary Henry Paulson said on Saturday a strong dollar was in his nation's interests and solid US economic fundamentals would support the currency in the long term.

"With regard to the dollar, my view has not changed: a strong dollar is in our nation's interest," he told a press conference after a meeting of Group of Eight finance ministers here.

Traders say that Washington appears to have been ratcheting up the rhetoric recently to talk up the US currency so as to keep a lid on inflation and limit the need for higher interest rate hikes that could stifle economic growth.

"Our economy is going through a tough period right now but that we've got strong long-term fundamentals. I believe that those fundamentals will be reflected in the currency," Paulson said.

He said the G8 had discussed foreign exchange rates during their talks but did not give details. With central bank chiefs absent from the meeting, currencies were not mentioned in the G8's final joint statement.

There has been speculation among currency traders that the G8 may consider a foray onto the market to prop up the dollar if it comes under renewed selling pressure, but Paulson sidestepped a question about possible intervention.

He said the US economy still faced challenges.

"With regard to housing, this is still the biggest risk to the downside in our economy. We're making progress working through the correction but I believe it's very likely that this will spill over into next year," he said.

US capital markets were "still under stress and as I said before we're making progress but there are going to be bumps in the road," he added.