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Euro rally hit by profit-taking, Nasdaq spike

NEW YORK: Europe's single currency slipped on Wednesday but held above the key $1.00 level as surging US technology stocks lifted the dollar, along with profit-taking from the euro's recent sharp rally.

After pushing to a one-month peak of $1.0089 overnight amid talk of higher euro-zone interest rates and concerns over Wall Street stocks, the euro succumbed to selling pressure in New York, trading near $1.0030 EUR in the late afternoon.

"The dollar is getting some strength from the bounce back in the Nasdaq, which took away dollar-negative news," said Eric Nickerson, chief currency strategist at Bank of America.

Nickerson said he believed the euro's surge of nearly 2 percent on Tuesday was driven less by euro-positive news than by steep losses by US equities at the end of last week and by the euro's sharp gains against a broadly weak Japanese yen.

"There isn't anything to encourage a great deal more euro buying, and it is going to have difficulty making headway in the near term," he said.

While blue-chip US stocks edged lower Wednesday, the tech-heavy Nasdaq composite index zoomed sharply higher, rising nearly 4 percent trading after Federal Reserve Chairman Alan Greenspan said monetary policy is not necessarily aimed at keeping stock prices in check.

Some analysts have expressed concerns the dollar may be vulnerable to a sharp correction on Wall Street, given the reliance of the US economy on capital inflows to help finance a massive trade and current account deficit.

In late trading, the euro was well below a four-month high of 112.22 yen EURJPY hit overnight, but was still a touch firmer than its Tuesday New York close.

"We have had a solid run and people are taking profits now, taking a breather," said Dennis Heidt, chief currency trader at Banque Paribas in New York.

The dollar also pressed higher against the yen, pushing back above the 111 yen level after its losses to the euro on Tuesday dragged it lower against Japanese currency.

In spite of the day's losses and forecasts that the euro may again fall below the $1.00 level, market watchers said any further drop may offer an opportunity to buy the euro on dips.

"The euro is in the process of forming a bottom against the dollar, but it's an extended and choppy bottom. We're turning around a rather large ship here," said Anne Parker Mills, senior foreign exchange economist at Brown Brothers Harriman.

The euro has risen nearly 4.5 percent from record lows at 96.60 cents earlier this month.

She said the fundamental picture looked constructive for the euro given concerns over a possible selloff by US equities and Europe's improved growth outlook and prospects for higher euro zone interest rates.

But she said the euro could nonetheless continue to struggle for some time to come.

"A characteristic of market flows is they usually last a lot longer than fundamentalists think they are going to. The move develops a life of its own and becomes a self-fulfilling prophesy," she said.

Market speculation is growing that Europe's central bank may hike rates again in March after surprising markets with a quarter-point interest rate hike earlier in the month aimed at warding off inflationary dangers linked to a falling euro.

Although higher interest rates can attract new capital to a country and thereby help boost the value of its currency, they can also chip away at the currency's value by hurting its asset markets.

Currency markets did not react strongly to Congressional testimony by Greenspan, who spoke about the state of the economy and monetary policy to lawmakers a week after sending a signal that US interest rates would continue to rise.-Reuters