The Taiwan dollar had its biggest daily gain in three and a half years, strengthening 0.9 percent to 31.705 per dollar in local trades, for a seven percent gain this year. That's its biggest one-day gain since May 2001, according to Reuters data.
The currency was helped by a surprise increase in the central bank's benchmark interest rate by 12.5 basis points on Thursday. A majority of analysts polled by Reuters had predicted no change.
Asian currencies are set to lead gains in world currencies against the dollar next year as the United States struggles to plug its record current account deficit.
The shortfall drove the dollar to a record low against the euro in New York on Thursday and boosted the yen a percent to a three-week high of 102.54 per dollar.
"The dollar's decline is inevitable," said Eric Chong, an analyst at Standard Chartered Bank in Singapore who studies historical charts of currencies to predict their outlook.
"My main concern for next year is the war in Iraq - it's going from bad to worse, taking away all the US resources when the economy there is not doing so well."
Chong expects the won and the Taiwan dollar to outperform Asian currencies next year.
The two Asian currencies were further boosted by exporters who sold their overseas earnings. Traders said the Bank of Korea had been selling won for dollars on Friday but that dollar sales by exporters exceeded the intervention.
The Indian rupee and the Thai baht were the other major gainers in Asia on Friday. Both currencies are likely to gain in the new year because of their relatively strong domestic economies and strong inflows into their stock markets, strategists said.
India's benchmark stock index rose to a record high this week.
The rupee advanced 0.4 percent to an eight-month high of 43.56 per dollar. The baht was quoted at a 10-month high of 38.85 per dollar.
The Singapore dollar advanced a third of a percent to 1.6300 per dollar, its strongest level in four weeks.