We have constructed a sequence of new basis sets for xenon. They range from [9s8p7d1f] to [9s8p7d5f3g] and have been especially designed for intermolecular interaction studies. We have tested their performance by calculating ab initio and DFT values of the interaction dipole polarizability of two xenon atoms. We show that a widely used density functional theory method yields qualitatively correct interaction polarizability curves. Near the estimated equilibrium of R(e)approximate to 8.5a(0) for Xe-2 second-order Moller-Plesset perturbation theory predicts a monotonic decrease of the anisotropy as =Deltaalpha(int)(R)/e(2)a(0)(2)E(h)(-1)approximate to 7.42 - 2.24(R -R-e) + 0.31 (R - R-e)(2), in agreement with the recent experimental estimate. (C) 2004 Elsevier B.V. All rights reserved.