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Euro near parity,further downward probe seen

TOKYO: The euro hovered above parity against the dollar in late Tokyo on Wednesday, but a further downside probe into uncharted territory was likely after it sank below $1.0 overnight for the second time in seven weeks.

Dealers were cautious, however, about pushing the euro down too aggressively amid concerns over the instability of the US stock market and vague overnight speculation over possible euro-buying intervention by the European Central Bank (ECB).

ECB speculation was fuelled by talk overnight that the bank may raise the size of its foreign reserves, as well as rumours that some European central banks may have lent a hand in stemming the euro's losses after it dipped to $0.9987 on Tuesday.

The euro stood at $1.0020/25, compared with $1.0003 in late New York trading on Tuesday. The dollar was at 105.80/90 yen, steady from 105.97 yen in New York.

Dealers said the euro/dollar rate could continue to be dictated by swings in New York stocks in the near term.

"The market's focus is on how the US asset markets will react to this week's key US economic data. So in the very near term, people are wary about pushing the euro/dollar in one particular direction," said a dealer at a city bank.

The key US data due out this week are the employment cost index (ECI) for the fourth quarter on Thursday and gross domestic product data for the same quarter on Friday.

The market was also awaiting US Federal Reserve Chairman Alan Greenspan's renomination hearings at the Senate Banking Committee on Wednesday.

Earlier this month, Greenspan said the Fed was intent on defusing mounting imbalances between supply and demand and would support higher borrowing costs to prevent the booming economy from overheating.

The dollar remained locked in a tight range against the yen, supported by bids from Japanese importers but capped by options-related offers and sporadic selling by Japanese exporters, dealers said.

"Many Japanese exporters are still looking to sell dollars above 106 yen, so the dollar's near-term upside may be limited," said a dealer at a city bank. For now, the dollar/yen rate is likely to take its cue from the euro's rates against the dollar and the yen, he said.

Sentiment remained generally bearish towards the single European currency after it failed to receive a boost from robust growth forecasts in the euro zone on Tuesday, dealers said.

German government sources said on Tuesday that the government's annual economic report, to be published on Wednesday, saw economic growth this year of at least 2.5 percent.

France said on Tuesday it was aiming for economic growth of 3.0 percent a year in its three-year plan.

Some analysts said the market was overly pessimistic about the euro, saying it may be nearing a selling climax and may already be at attractive levels for long-term investors.

Shigeo Ichioka, a strategist at Asahi Bank's market trading department, said: "Japan is mired in a ballooning fiscal deficit while the United States faces a stock market bubble. By contrast, Europe's fiscal conditions are relatively sound and its stock markets do not look overheated.

"So out of the three major currencies, the euro may stand to become the winner in the event of any future financial market turmoil."-Reuters