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Euro slumps, yen gains ahead of G7 meet

NEW YORK: The euro dropped broadly on Friday and looked ripe for further losses as traders voiced disappointment at the currency's failure to capitalise on positive European data and a selloff on Wall Street this week.

The euro's woes began with a wave of selling against the yen, which found fresh strength amid growing doubts a Group of Seven summit this weekend will result in a decisive show of support for Tokyo's concerns about the robust yen.

The yen also closed higher against the dollar as traders awaited the outcome of the G7 meeting of finance ministers and central bankers in Tokyo.

After tumbling to a two and half week low of 105.22 yen in early New York trading, the euro sank against the dollar to a three-week low of $1.0051, and hit a record floor against the British pound for the sixth straight day at 60.89 pence.

The euro later pared some losses to close 0.82 percent weaker against the dollar at $1.0089, 1.34 percent softer against the yen at 105.67, and down 0.46 percent against the pound at 61.15 pence as the session wound down.

"European numbers have been better, US stocks have been soft and the euro just can't seen to rally," said Mark Gargano, managing director of currency derivatives at First Union National Bank.

"People have thought it ought to get stronger but it isn't and that makes me nervous," Gargano said.

Blue-chip US stocks drooped for the fourth consecutive day on Friday with little impact on the dollar. The euro on Thursday failed to benefit from a rise in a key index of the business climate in Germany, Europe's largest economy.

Traders and technical analysts said the euro's failure to generate momentum this week, despite several stabs toward the $1.02 area, set the stage for a possible retest of its lifetime lows against the dollar just under $1.0000.

"For the long haul ... around parity is an attractive level to buy," said John McCarthy, senior vice president at ING Barings.

"But in the short- to medium-term, the euro still suffers from a number of different problems, and no doubt we'll see a test of parity and below at some point in time."

First Union's Gargano said the euro could face a turbulent week after this weekend's G7 summit.

Pre-G7 speculation helped the yen firm overnight after a slew of remarks from finance officials which dampened suspicion Tokyo might be able to enlist the G7's backing for engineering a milder yen.

The dollar settled at 104.68 yen in New York, 0.62 percent lower than its 105.33 Thursday close.

"There's increasing awareness that the probability that anything important or new will be stated in the communique is dropping as we approach the G7 (meeting)," said Ben Strauss, vice president at Bank Julius Baer.

"That is causing people to scurry a little bit to cover yen positions ahead of the week," Strauss added.

The focus was on whether the G7 would at least repeat the wording they used at their last meeting in September -- that they shared Japan's concern about the impact a higher yen would have on that nation's economic recovery.

US Treasury Secretary Lawrence Summers said in Tokyo that the United States and Japan shared concern over imbalances in the global economy and that stronger growth in Europe and Japan was key for a more balanced global growth.

Yen buying was triggered after Tokyo's Economic Planning Agency chief Taichi Sakaiya said a stronger yen was not necessarily detrimental to the Japanese economy. Finance Minister Kiichi Miyazawa said he did not know what the G7 would conclude regarding the yen.-Reuters