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Euro holds gains as Wall Street buckles

NEW YORK: The euro extended its birthday rally on Tuesday, the second trading day of 2000 when dealers welcomed signs of stronger growth in Europe and worried about Wall Street's health as US stocks tumbled for a second day.

On Monday, positive European manufacturing data and tumbling US asset markets sparked the euro's rally which continued overnight.

At the close of New York trading, the one-year old euro commanded a nearly 2-1/4 percent gain on the yen to stand at 106.40 yen. It also gained more than half a percent on the British pound to 62.96 pence and rose 0.45 percent against the dollar to $1.0308.

In the two trading days of 2000, the adolescent currency has gained nearly two percent in value against the dollar and almost one percent against the yen.

"We think the lows have been seen for the euro," said Robert Sinche, currency strategist at Citibank in New York. "You have both improving cyclical conditions in the euro area and the risk in US asset prices pushing the euro higher."

The selling spree on Wall Street continued on Tuesday against a background of rising US bond yields and fears the Federal Reserve will raise interest rates more aggressively than previously expected to help cool the red-hot economy.

The Dow Jones industrial average tumbled 3.17 percent, falling nearly 360 points to 10997.93 while the technology laden NASDAQ was even harder hit and posted a 5.56 percent loss at 3901.49 one day after setting a record high.

Overnight the euro received a small boost when Japan's central bank again sold its own currency on the open market in order to prevent a rapidly strengthening yen from choking off the nation's fragile economic recovery.

For the third time since November, the Bank of Japan acted to block the yen's rise to 101.00 to the dollar when the yen hit a four-year high of 101.25. At the close, the dollar stood at 103.25 yen, up over 1-1/2 percent.

"This looks like a gentle reminder from the Japanese authorities that they're really uncomfortable with the level of the exchange rate Citibank's Sinche said.

Fears there may be more intervention in the days before a meeting in Japan of the Group of Seven rich nations kept the yen wedged in a relatively tight trading range.

While traders and analysts cheered the euro's new gains, many questioned the rally's durability, noting there may be big obstacles to more gains above the $1.0450 level.

"The jury is still out on growth in Europe and that is why the euro came off a little from its session highs," at $1.0343 explained Banc One Capital Markets vice president Ralph DelZenero in Chicago.

"We've come two-and-a half, almost three cents in the last day-and-a-half, so we've seen a pretty significant move, and I think that we've just run out of steam a little bit," added Bob Houck, trader at Norwest Bank in Minneapolis.

Currency markets shrugged off news that President Bill Clinton nominated Alan Greenspan to a fourth term as chairman of the Federal Reserve Board, a move which dealers said had been widely expected and should be positive for the dollar.

Currency bid prices at 2214GMT. All data taken from Reuters with percent change calculated from the daily US close at 2130GMT.-Reuters