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Euro revives after slip on soft German data

NEW YORK: The European single currency dipped on Wednesday after weak German industrial production data cast a shadow over the fortunes of the euro zone's largest economy, but it managed to claw back most of its losses.

After rallying against the dollar and yen in Asian trading, the euro reversed course in Europe when German output dropped 0.5 percent in November -- sharply lower than the 1.0 percent gain expected by economists.

Selling pressure continued in early US trading, and the euro slumped to a session low of $1.0262 -- more than a full US cent below its overnight high -- before drifting back up.

"The German data ... was disappointing and provided the market with a convenient excuse to sell the euro and take profits from its recent rally," said Alex Beuzelin, foreign exchange market analyst at Ruesch International.

The euro had also slipped as much as 1-1/4 yen from its 109.76 seven-week peak hit overnight amid continued speculation that Tokyo may garner support for a softer yen at a meeting of the Group of Seven (G7) industrialised nations on Jan. 22.

But by the close the euro was well off its lows, standing at $1.0310 against the dollar, down just 0.21 percent from Tuesday's close. It also rebounded to 109.21 yen to end down just 0.34 percent.

"The data wasn't really enough to scare the market, it just pressured the euro and created a buying opportunity for people looking to buy euro/dollar, euro/yen, euro/sterling and euro/Swiss," said a currency trader at a US bank.

Several analysts said they doubted the euro's losses would deepen, citing uncertainty over US interest rates and asset markets and faith European growth will pick up in 2000 as euro supportive.

"The overwhelming majority of the data in Euroland over the past three months has been fairly (euro) supportive, so it is probably more important to focus on the broad trend than on one report," said Bob Lynch, currency strategist at Paribas Corp.

Lynch said he saw the euro rising as high as $1.09 by the end of the quarter.

Dealers said markets were focused on key US retail sales and producer price data on Thursday for clues about whether price pressures are building in the red-hot US economy.

A speech by Federal Reserve Chairman Alan Greenspan after US markets close on Thursday will also be closely tracked for clues to future interest rate policy.

Federal Reserve Bank of Chicago President Michael Moskow warned on Wednesday that the pace of US growth is probably too rapid to sustain without spurring inflation.

He said the Fed did not want to "artificially boost growth in demand with an overly accommodative monetary policy."

The dollar briefly drifted lower against the yen JPY in US trading before floating back up to trade little changed from its Tuesday New York close near 106 yen.

Traders said caution ahead of the G7 meeting later this month has limited yen gains, although most doubt the prospects of joint intervention to limit yen strength, which Tokyo fears may harm Japan's exports and economic prospects.

US Treasury Secretary Lawrence Summers said the G7 meeting would have no particular focus beyond discussion of macroeconomic developments and the state of emerging market economies. Reiterating that Washington's strong dollar policy remained intact, Summers declined to comment on speculation that the G7 might assist Japan in weakening the yen.

The British pound GBP hovered near two-month peaks but off the day's highs against the dollar as the market awaited the outcome of the Bank of England's two-day Monetary Policy Committee meeting. The market expects the BOE on Thursday to raise its 5.50 percent repo rate by 25 basis points.-Reuters