[OS X TeX] dvipdfm: no such file or directory

[Wan Kuang]

Hi,

I have problem generating pdf output with dvipdfm. 
The figure in the tex file cannot be properly loaded. 
Here is my newfile1.tex file,

********************************
\documentclass[english]{article}
\usepackage[T1]{fontenc}
\usepackage[latin1]{inputenc}
\usepackage{graphicx}

\makeatletter
\usepackage{babel}
\makeatother
\begin{document}
this is a test

\includegraphics{Fig}
\end{document}
*******************************

latex newfile1.tex produces dvi file, but dvipdfm newfile1.dvi complains that

newfile1.dvi -> newfile1.pdf
[1(./Fig.eps<PS>zcat: ./Fig.eps.Z: No such file or directory
)]
6842 bytes written

Why does dvipdfm look for Fig.eps.Z? 
I installed Tex through i-Installer and OS is 10.4.7.

-Wan

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