INVESTORS should be cautious of fund managers' claims that the US dollar is set for a major rally, independent advisers claim. Regional currencies, such as the Singapore and New Zealand dollars, look safer bets for those seeking an alternative to the embattled greenback. Fund managers last year predicted a dollar rally which failed to materialise and there is increasing scepticism about this year's prediction. The managers are basing their claim on an assumption that American interest rates will have to rise by at least 100 basis points this year. Bill Tatham, a divisional director of Towry Law International, said: 'Last year proved the fact that the consensus opinion is not necessarily true. Therefore, an investor might want to hedge his bets by buying some strong currency now but leaving off until later in the year to buy the rest.' But Mr Tatham stressed that buyers should be extremely cautious and that private investors were probably best left on the sidelines. The US dollar appears to have slipped into a narrow trading range for the immediate future but an additional break and slump to new low over the next month could be followed by a rebound. An analyst remarked: 'Because neither the Bank of Japan, Bundesbank nor the US Federal Reserve is willing to purchase unlimited dollars, unless there is a real crisis in other financial markets or their real economies, it is inevitable that the dollar must reach on oversold level before it finds support, and that point has not been yet reached.' Mr Tatham said: 'Buying a strong currency now at this stage in order to make short-term gains is very speculative and many people will get their fingers burnt since the lion's share of the short-term gain has already been made. 'If you are getting paid in Hong Kong dollars but your base currency is, for instance, a European currency like mark or sterling, then I would advise only buying a small amount of your domestic currency now and holding on to see if the predicted dollar rally occurs later in the year.' Investors should remember there are several ways of holding foreign currencies. These range from managed currency funds, where a manager will choose from a basket of funds, through to single currency funds. Most leading banks and fund management groups have a range of currency accounts on offer. The past two months have illustrated how difficult it is for even the experts to get it right. This is because currency movements can be affected by factors ranging from market sentiment - expectations of gains or losses - through to a country's indebtedness to the rest of the world. James Leslie, manager of Guinness Flight Asia's Asian Currency and Bond Fund, said investors seeking to benefit from the long-term weakness of the US dollar should consider the Singapore dollar rather than the yen. Mr Leslie said: 'Clearly the yen has reached very over-valued territory and the focus must shift to other opportunities in the region.' The same fundamental strengths that caused the appreciation of the yen could be expected to replicated elsewhere in the region, he said. The yen had appreciated by 14.5 per cent against the US dollar; the Singapore dollar had risen 2.6 per cent. Over five years, the yen had appreciated by 44 per cent while the Singapore dollar had gained 25 per cent. 'Singapore runs a current account surplus of 18 per cent of gross domestic product and due to the value-added nature of its exports, currency appreciation does not erode the competitiveness of the economy, similar to Japan.' He said the only thing preventing faster appreciation of the Singapore currency was action by the Monetary Authority of Singapore to reduce speculation. The company also favours the Thai baht which, despite a large current account deficit, is economically strong and the New Zealand dollar, where interest rates are 9.25 per cent. The main currency spreads in its Asian Currency and Bond Funds are: baht 30 per cent; New Zealand dollar 21; Singapore dollar 15; Indonesian rupiah 10; and the yen 10. The New Zealand dollar jumped yesterday to its highest level in more than six years amid optimism about the economy.