US Treasury's Paulson says economy healthy

CAPE TOWN, Nov 16 (Reuters) U.S. Treasury Secretary Henry Paulson said on Friday Washington was following a strong dollarpolicy and indicated he expected it to rebound, emphasising the U.S. economy's long-term strength should help the currency.

But Paulson warned in a radio interview in Cape Town that some aspects of the U.S. subprime mortgage crisis would become worse before getting better.

Paulson is in South Africa partly for a weekend meeting of finance chiefs from the Group of 20 economies, some of whom have expressed concern that the dollar's falling value is putting strain on their ability to export.

''We have very much a strong dollar policy ... that's in our nation's interest. Our economy, like any other, goes through its ups and downs but I believe the U.S. economy will continue to grow and its long-term strength will be reflected in our currency markets,'' Paulson told 567 Cape Talk radio.

The dollar has fallen 9 percent against a basket of major currencies <.dxy> to record lows in 2007, largely because of darkening prospects for U.S. economic growth during a sharp housing sector slowdown.

Paulson said the United States was making progress in working through financial turmoil stemming from the subprime mortgage market.

But, he warned, ''parts of it will get worse before it gets better,'' referrring to rising defaults among mortgages issued to less credit-worthy borrowers.

He made no reference to the dollar's value being set in open and competitive markets, as he has regularly done in the past.

REUTERS PBB RS2044