20000305Euro sags as Wall Street gains buoy dollar

NEW YORK: A powerful rally on Wall Street propelled the dollar higher against the euro on Friday after a benign US employment report soothed fears that inflation could derail robust US growth.

"Inflation was the big bug-a-boo that was going to throw a wrench into the good times we've had in the US," said Bob Houck, euro trader at Norwest Bank. "Now, it's just about focusing on the differing growth prospects between the US and European economies, and those definitely favour the US."

The European currency tumbled below 96 cents, its weakest level since Monday, when a violent selloff had temporarily swept the 14-month-old euro to lifetime lows near 94 cents.

US markets applauded the February jobs report, which showed the pace of job creation slowing sharply, reducing the pressure for aggressive future interest rate hikes.

Non-farm payrolls grew by 43,000, well below forecasts, after an increase of 384,000 in January. Hourly earnings data, closely monitored for signs of wage inflation, met expectations with a 0.3-percent rise while unemployment rose a touch to 4.1 percent from 4.0 percent in January.

US stocks responded enthusiastically to the data, with the Dow Jones industrial average closing up nearly 2 percent at 10,367 and the technology-heavy Nasdaq rising into record territory to end up more than 3 percent at 4,915.

Market sentiment about the European currency remained overwhelmingly bearish and further declines were possible next week, traders said.

"It seems that no matter what news comes out, whether it's here or in Europe, they are interpreted in a negative light for the European currency," said Ben Strauss, vice president at Bank Julius Baer. "The euro is headed lower."

Despite the dollar-friendly data, the market was nervous about pushing the euro aggressively lower, traders said, and fears of possible central bank intervention helped prop up the euro above its record lows.

The European Central Bank's decision on Thursday to leave interest rates steady had weighed on the euro against the dollar and the Japanese yen.

"There is a bit of reluctance to test the downside for fear of triggering central bank action," said Alex Beuzelin, forex market analyst at Ruesch International.

Other European currencies were mixed against the dollar. The Swiss franc followed in the euro's footsteps and lost ground against the greenback, but the British pound rose slightly versus the dollar.

In other trade, the yen posted solid gains against the sagging euro, but the Japanese currency traded failed to make an impact against the dollar.

Traders said the yen would remain in a tight range against the dollar while it consolidating strong mid-week gains.

The yen had shot to one-month highs against both the euro and dollar on Wednesday, boosted by a buoyant Japanese stock market and Japanese investors shifting assets home ahead of their fiscal year-end on March 31.

As US trade ended down the dollar traded just below 108 yen, virtually unhanged from the previous day's close.

"I think dollar/yen will make another move to the downside from current levels," said Roman Dutkewych, a technical analyst at Lehman Brothers.

The week's lows around 106.50 yen will offer some chart support, but a further break to 105.25 is likely in the next week or two, Dutkewych said.-Reuters