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Euro in high spirits one year on

SINGAPORE: Optimism about Europe's growth prospects in the new year gave the euro a case of deja vu on Monday, helping it celebrate its first trading anniversary in high spirits.

Dealers said the rally, which lifted the euro by a big figure to highs of around S$1.0185, had been on very light turnover with much of Asia still on holiday.

They said trade was likely to remain slow with London also closed on Monday and as banks remained cautious about potential computer problems despite a smooth crossover to the new year.

By early afternoon in Singapore, the euro was off its highs but dealers said it showed potential to strengthen in the coming weeks as players unwound long dollar positions amid relief over the lack of major millennium problems.

"Last year was not impressive for the euro. But it is the market view that the euro should rally this year. The assumption is that the U.S. economy will weaken as its stocks are overvalued," said Thio Chin Loo, strategist at Paribas.

European Central Bank President Wim Duisenberg's bullish comments about the euro at the weekend boosted the currency against the dollar and the yen, dealers said.

Duisenberg said he saw upward potential for the euro in 2000 as growth in the euro zone outpaced that in the United States.

EUROPEAN GROWTH SEEN OUTPACING U.S.

"We now expect growth in Europe during the course of this year to be faster than growth in America and that will also remain in 2001. That is the basic background why we say the euro has now an upward potential," he said in an interview on Dutch television.

Russian President Boris Yeltsin's surprise resignation last week was also expected to keep the euro supported.

"The fact that Yeltsin has gone at last is also seen as a bonus...the volatility and uncertainty associated with Russia could calm down," said Kevin Ralph, first vice president at Sanwa Bank in Singapore.

Dealers expected the euro to be supported at the previous resistance of $1.0185, with a target of $1.0250, ahead of the December high around $1.0295.

The German purchasing managers' index, due later on Monday, was expected to show continued economic expansion, which in turn could spur thoughts of a rate hike.

"The market is expecting a 25-basis-point hike in the first quarter of the year, but we would not rule out something more dramatic," Standard Chartered said in a daily bulletin.

Dollar/yen was slightly pressured by the gains in euro/yen, dipping below the 102 level, but activity was very subdued with Japanese markets still shut and lingering wariness of Bank of Japan intervention.

There was little consensus on whether the market would make a renewed attempt on the 100 yen level, but dealers expected caution to prevail ahead of a Group of Seven meeting this month.-Reuters