20000301Euro ends lower after dramatic fall

NEW YORK: The euro plunged to a record low against the dollar on Monday but trimmed some losses in uneasy trading still dominated by a fascination with America's extraordinarily strong growth rates.

In less than six hours of overnight trading, the euro fell 3.5 percent against the dollar to a record low near 94 cents, and dropped almost five yen. This was its its biggest one-day decline since the January 1999 launch of Europe's single currency.

Dealers found no single catalyst for the unexpectedly sharp drop and blamed most of it on widening growth differentials between the United States, which boasted a nearly 7 percent rate of growth in the fourth quarter, and Europe, which can hope for a 2.5 percent expansion at best.

"It is the idea that the United States is representative of the new economy while Europe is representative of the old economy and that benefits the dollar and hurts the euro," David Gilmore, partner at Foreign Exchange Analytics said.

By the end of the day however, dealers had realised the sharp drop could not go on forever and bought back some euros in order to repay currency borrowed in anticipation of a price drop.

At the close of trading the euro was down about one quarter of a percent near 97.17 cents. Against the Japanese currency, the euro was off only about three-quarters of a percent at 106.36 yen.

But the recovery appeared fragile, dealers said. They said they saw no real reason for the turnaround in New York trading, and added they thought the euro may still be vulnerable to sink toward 90 cents in the coming days.

"We have been saying it is headed for 90 cents for a long time and we have not changed our minds after today's moves," said FleetBoston analyst Jeremy Fand.

The dollar also drew strength from the Dow Jones industrial average's 1.79 percent gain, in the face of the Nasdaq index's 0.27 percent drop.

The euro's sharp decline looked a lot like disorderly market conditions, something sure to upset policy makers world-wide, there was little evidence that Europe would mount a big rescue operation.

Italy's Treasury Minister Guiliano Amato, speaking for his European colleagues who had met in Brussels, said no one had suggested that the central bank intervene on the euro's behalf. Also the group agreed no statement on the euro was needed.

When they met last month, finance ministers from the 11 euro zone nations had issued a statement saying they believed the currency would appreciate as the economy accelerated.

Amato's comments overshadowed comments from Bank of France governor Jean Claude Trichet, who said he was unhappy with the euro's present level.

One reason dealers may have paid little attention to Trichet is the idea that French officials have generally been the most concerned with the euro's losses even though they too have had little positive impact on the currency's fortunes.

The euro is down 13 percent on broad trade-weighted measures since its launch and has lost about 20 percent of its value against the dollar.

The euro also remained soft against the Japanese yen amid lingering concern that Japanese investors were not finished hedging European asset market positions, a factor seen weighing on the euro overnight, analysts said.-Reuters