Kuwait's central bank allowed the dinar to appreciate against the dollar on Sunday to its highest in three weeks, after the euro recorded its biggest weekly gain against the greenback since mid-March.

The dinar will trade around a mid point of 0.28150 per dollar, compared with 0.28170 the previous trading day, the central bank said, allowing an appreciation of 0.07 percent.

The currency of the Middle East's fourth-largest oil exporter has risen 2.71 percent since May 19, a day before the central bank dropped its peg to the weakening dollar and adopted a basket of currencies. Kuwait has declined to give the composition of the basket.

The dollar fell against most major currencies on Friday, despite strong US economic data, as calmer credit markets sparked renewed interest in riskier overseas assets.

In late New York trade, the euro saw its biggest one-day gain against the dollar since early July, rising 0.74 percent. The European currency has risen almost 3.6 percent against the dollar this year.

Sunday's appreciation takes the dinar to its highest level since August 6.

The central bank says the dollar's decline on global markets is driving up inflation and making some imports more expensive.

The US currency hit a record low last month against the euro in which Kuwait pays for more than a third of its imports. Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah said on July 29 the basket gave the bank flexibility to track moves on global foreign exchange markets, state news agency Kuna reported. - Reuters