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Euro ends day down but week as a winner

NEW YORK: Europe's embattled currency dipped slightly on Friday but turned itself into a winner on the week, staging a swift rally in the wake of global interest rate hikes.

More strong U.S. economic data coupled with softer-than-expected German data deflated the euro on Friday, leaving it to end down just over three-quarters of a percent against the dollar. It fell over 1 percent against the yen.

For the week, the euro closed more than 1.5 percent above its life low of 96.60 cents set just a few days ago.

"I suspect this is the first part of a correction for the euro," said Marc Chandler, currency analyst at Mellon Bank. "European officials are concerned about the euro's weakness," Chandler said, noting that "Wim Duisenberg, head of the European Central Bank, said as much after he hiked rates on Thursday."

Declaring the weak euro could spark new inflationary pressures by pushing up import prices, the ECB surprised markets by pushing its main refinancing rate up a quarter of a point to 3.25 percent.

One day earlier, on Wednesday, the Federal Reserve lifted rates in an effort to slow America's robust economy.

Switzerland, Canada and Australia also raised rates this week.

Meanwhile on Friday, U.S. jobs data for January showed that 387,000 new jobs were created outside the farm sector as the unemployment rate fell to 4.0 percent, its lowest level in 30 years. Although mild weather in January helped beef up the job rolls, economists said the data presented new evidence that the economy is not slowing quickly enough and that the Federal Reserve may soon need to accelerate its tightening process.

Higher interest rates often attract fresh capital into a country and thereby help boost the currency.

News that German industrial orders posted a seasonally adjusted, month-on-month drop of 1.9 percent in December also undermined confidence in the euro.

In other trading the dollar gained against the euro and Swiss franc although it closed the week at 1.6340 francs, far below the 10 year high hit at 1.6617 francs earlier in the week. The dollar fell against the Japanese yen to 107.16 yen, after spending most of the week trading in a higher range against the yen.

On the crosses, the euro was pressured against the British pound as dealers said they were unwinding positions taken on in the wake of a European telecoms industry mega-merger.

German telecoms giant Mannesmann AG agreed to merge with British group Vodafone AirTouch in a deal estimated at 183 billion dollars, making it the largest corporate merger in history.

News of the merger, along with the rise in European interest rates on Thursday, had helped underpin the euro.

"There's an acceptance that this restructuring is going forward and there could be a lot of more mergers and acquisitions in Europe which is seen as a good thing," said Kathy Jones, director of futures research at Prudential Securities.-Reuters