Kuwait allowed the dinar to make its biggest daily gain against the dollar in four months on Tuesday after losses for the US currency a day earlier.

Kuwait is the only Gulf oil producer without a currency peg to the dollar, giving it flexibility to keep its currency strong even as the dollar weakens on global markets.

The Kuwaiti central bank, which generally adjusts the dinar rate every morning, allowed the currency to rise 0.34 percent against the dollar on Tuesday, the biggest one-day rise since May 22.

The dinar, which tracks a currency basket comprised mainly of dollars, will trade around a midpoint of 0.26610 per dollar, compared with 0.26700 per dollar, the Central Bank of Kuwait said.

The dollar lost around 2.5 percent against the euro on Monday as the US government's bailout plan to ease a financial credit crisis reignited worries about the country's budget deficit.

The $700 billion package, which is awaiting congressional approval, would give sweeping powers to the US Treasury to buy mortgage-related bad debts from financial firms.-Reuters