This Chronology is based on information from several news sources (ECB bullettin, Reuters, Wall Street Journal, New York Times, Int. Herald Tribune, CNNfn, Financial Times, Bloomberg,etc.)

Go to most recent update

Go to the years 1998-1999

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y2k: a non-issue.
From the ECB: all systems of the ECB and the national central banks of the European Union started smoothly on 3 January 2000 and are functioning correctly.  All financial markets in the Eurosystem closed without incidents on 30 December 1999 after a week with relatively limited activity. The banking sector had ample liquidity available. As TARGET was not operating on 31 December 1999 no large-value  cross-border payment transactions were conducted in euro on that day. Over the weekend, the ECB and the National Central Banks completed successfully the checking of the essential infrastructure components as well as of the critical internal and ESCB-wide systems.   As far as banknotes in circulation are concerned, there was just a marginal increase in comparison to the previous seasonal pattern (the increase for the Eurosystem was around 3 % higher than last year).

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The euro rose above the 1.03-dollar level  Tuesday for the first time since late November, benefitting from the dollar's weakness due to steep US stock declines and the Bank of  Japan's market intervention.

A fine-tuning operation by the ECB!
The ECB has decided to conduct a liquidity-absorbing fine-tuning operation on 5 January 2000, with same day settlement and maturity on 12 January 2000. The  operation will be specified as a collection of fixed-term deposits and will be processed as a quick tender procedure with a variable rate. Bids at an interest rate up to a maximum of 3.00% will be accepted for submission. The intended allotment volume, which will be specified tomorrow in the tender announcement to be issued at 11 a.m.,  will be around EUR 35 billion. Counterparties selected for fine-tuning operations will be  invited to participate. The prevailing liquidity situation reflects the ECB's commitment to prevent liquidity  constraints from occurring during the transition to the year 2000, as well as the substantial expansion of liquidity provided by autonomous factors at the beginning of the  year. As the transition to the year 2000 went smoothly, the ECB now considers it appropriate to adjust the liquidity situation accordingly. This decision takes into account  the fact that the next main refinancing operation will not take place until 12 January  2000, as the ECB decided in September 1999 to eliminate, on prudence grounds, the  maturing and renewal of main refinancing operations during the first week of this year.

from the news:
A year after the launch of the euro, the currency appears to be a good buy for Asian central banks eager to diversify their US-dominated reserves, analysts say. Central banks and investment houses in the region had been keen  to have the euro as a key component of their reserves even before the European single currency was launched on January 4 last year. But many of them postponed buying on expectations the euro would  slump to below parity with the US dollar before stabilising.

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The following is a comment by European Central Bank President Wim Duisenberg on the ECB's decision to leave interest rates unchanged. Duisenberg spoke at a press conference in Frankfurt following the central bank's regular council meeting:  ``The liquidity situation in the euro zone remains generous. That is also reflected by the strong growth of loans to the  private sector.'' Rising bond yields reflect hopes for a recovery in the euro  area economy, Duisenberg said. Bond markets are ``more optimistic  about the outlook of euro area growth. `` Activity in the world economy continues to gain momentum. This reflects a sustained high level of growth in the U.S., a  broad upturn in industrialized countries and a recovery in Asia. ``The latest developments relating to economic activity in  the euro area have contributed to the improved outlook for the  global economy and are consistent with the expectation that growth differentials between the main economic regions will narrow.'' Data for the industrial sector point to ``continued solid  output growth in the final quarter of last year. Private  consumption growth should benefit further from continued employment growth and a high level of consumer confidence.''

He said the increase in European Union's harmonized index of  consumer prices -- the rate of inflation -- in November was due to  a large extent to higher energy and unprocessed foods prices. This   is ``similar to the situation in the previous months. ``The governing council recognized that in the short-term consumer price developments are expected to remain subject to  further upward pressure.'' This is mainly due to higher oil  prices, exchange rate developments and the ``gradual unwinding of the earlier downward movements in food prices.   ``The combined effect of these factors is expected to lead to   a peak in the overall HICP increase in early 2000 and to lessen  thereafter. Therefore, taken by itself, the upward movement in the  rate of increase of the HICP expected for early 2000 should not give undue cause for concern.  ``However, in terms of the outlook for price stability in the  medium term, it is essential that the immediate upward movement  does not translate into general inflationary pressures and, in  particular, that it does not trigger second-round effects such as  excessive wage claims.'' The ECB will remain ``both confident and vigilant. ``I would not be surprised if inflation still creeps up a   little bit in coming months, but I am confident that it will then  taper off.''

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The Ecuadoran central bank has approved a plan to  replace the national currency with the U.S. dollar in an effort to eliminate runaway inflation amid a deepening economic crisis. The central bank approved the plan late Monday night, despite initial   objections by some of the board's governors. President Jamil Mahuad had  warned that he would call a special session of Congress on Tuesday to fire  any central bank executives who tried to block the measure.

Finance Minister Alfredo Arizaga said in a television interview Monday that Ecuador has $400 million worth of sucres in circulation and holds foreign cash reserves worth $900 million. That ratio ''means there will be no problem in swapping sucres for dollars,'' Mr. Arizaga said. The Ecuadoran economy shrank 7 percent and inflation topped 60 percent  in 1999, the highest rate in Latin America. Many economists predicted that  speculation against the sucre would send Ecuador into hyperinflation this   year if the government did not act.

The United States technically cannot block a country from adopting the  dollar, but such a move typically involves consultation with U.S. officials.  There was no immediate public response Monday from the U.S. Treasury  Department. Mr. Mahuad's announcement came after a tense week of street protests  and rumors that the army was planning a coup. The military high command  issued a statement Saturday expressing support for Ecuador's    democratically elected government.

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The Bank of England raised short-term interest rates by one-quarter point Thursday, a move that economists said presaged similar rate increases in Europe and the United States to forestall inflation at a time  of accelerating global growth. ''The outlook for world economic activity has strengthened,'' it said in a statement after it raised its key short-term lending rate to 5.75 percent.

Further signs of strength were reported Thursday in the United States,  where the government said retail sales in December rose at the sharpest  rate in 15 years. At the same time, prices remained tame. The outlook for inflation has been more worrisome in Europe, with recent reports suggesting an uptick. That has led analysts to expect an increase in  interest rates by the European Central Bank, with a move by the U.S.  Federal Reserve Board already seen as a foregone conclusion. The increase by the Bank of England had been widely anticipated and did little to damp the enthusiasm in financial markets. British bond prices rose  sharply, but the stock market was flat.

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Greece asked the European  Union to raise the drachma's target exchange rate against the euro, taking a decisive step toward adopting the common currency now shared by 11 EU countries, people familiar with the government's plans said. The Greek government called a meeting of the EU's economic and financial committee for Saturday to increase the target from  the current 353.109 drachmas per euro, three EU officials said. A revaluation would bring the target closer to the drachma's trading level of 331.32 per euro.  Many analysts expect the European Union to reset   the target to around 343 drachmas per euro.

Expectations that a revaluation would pave the way to lower interest rates pushed the drachma as low as 332.40 per euro from 331.23  yesterday. The lending rate banks charge each other for one-year    loans fell 34 basis points today to 7.73 percent. A higher target would help contain inflation by reducing the amount the drachma will have to decline before the currency is swapped for the euro. Greece intends to apply for euro membership  in March and wants to become the 12th member of the monetary union in 2001.

Accelerated consumer spending pushed  growth of gross domestic product in the 11-nation euro zone and the full 15-nation European Union to one percent in the third quarter of 1999 from the figure for the second quarter, the EU statistics office Eurostat reported Friday. In the second quarter growth had been 0.6 percent. The growth was powered by a 0.8 percent increase in consumer  spending in both groups, it said, up from 0.2 percent in the euro zone and 0.3 percent in the EU in the second quarter.  By comparison, said Eurostat, third-quarter GDP in the United  States rose by 1.4 percent, from 0.5 percent in the second quarter. In Japan, it dropped by 1.0 percent after a 1.0 percent  second-quarter increase. Third-quarter growth in the G-7 industrial nations held steady  at 0.6 percent, said Eurostat.

'It is essential that the immediate upward movement in consumer prices does not translate into general inflationary pressures and, in particular, that it does not trigger second-round effects such as excessive wage claims,'' the  ECB wrote in its monthly report for January.The 11-nation central bank warned labor unions that immoderate wage settlements rank as Europe's main inflation risk. The report came two days   after Europe's biggest labor group, the IG Metall industrial union in Germany, announced that it wanted an aggressive 5.5 percent wage increase this year.

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Rudiger Dornbusch, a  Massachusetts Institute of Technology economist, said at a   conference in Rome that the euro would rise 10 percent against the   U.S. dollar this year, Il Sole/24 Ore reported. ``The euro is a success,'' Dornbusch said, pointing to its creation, its foundation on solid economic convergence and the way the European   Central Bank managed it, the newspaper said. ``It will rise as a consequence of a slowdown in the U.S. economy and of the  foreseeable decline in Wall Street,'' Dornbusch said, adding that ``U.S. interest rates will go up in February,'' the daily   reported. 

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European Union officials have raised the Greek drachma's  central rate in Europe's exchange rate mechanism by 3.5 percent, paving  the way for Greece to cut interest rates and keep inflation tame as it strives  to adopt the common currency by next year.

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The euro fell towards parity on Monday, trading around 1.0004  per dollar against 1.0084 on Friday in New York, with analysts attributing the weakness to lack of support for the single currency from the Group of Seven industrialized nations' meeting over the weekend.

The government of Estonia Monday  appointed a team of experts to examine the possibility of the country adopting the euro from 2002, the government press service said. The decision was made despite warnings from the European  Commission and the Estonian central bank against the unilateral adoption of the EU single currency. Estonia is not part of the 15-nation European Union nor the  11-nation euro zone. The government, however, is negotiating EU membership and hopes to join the bloc as early as 2003. Prime Minister Mart Laar's economic advisor is to lead the working group, which would also probably include consultants from the European Commission, the press service said.

New members of the European Union must  implement structural reform before they adopt the euro, Europe's economic and monetary affairs commissioner Pedro Mira warned here Monday. Candidates in central and eastern Europe would have strong  incentives to join economic and monetary union (EMU), he told a news conference at the Foreign Correspondents' Club of Japan. Top candidates for European Union membership are the Czech  Republic, Cyprus, Estonia, Hungary, Poland and Slovenia. Other hopefuls are Bulgaria, Latvia, Lithuania, Malta, Romania, Slovakia and Turkey. Central European nations hoping to join were already getting a  boost to their economies from exports to the 11 euro-zone countries through lower business costs and the elimination of exchange rate risk, Mira said. The euro also allowed them to reduce the mismatch between the  currencies which most of their trade is based on and the currencies which make up most of their debt, he added. Hungary and Lithuania had already issued euro-bonds last year.

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The euro fell to a record low below  parity with the dollar on Tuesday as international investors continued to be lured by the prospect of rich returns from US asset markets.  The euro briefly dipped to 0.9988 dollars, slightly lower than  the previous all-time low of 0.9990 dollars touched on December 3. It was being traded at 1.0063 dollars in late afternoon trading here. Market predictions of renewed gains on Wall Street unleashed the  latest wave of selling.

The euro had already come under fire on Monday, when apparently investors displayed unease at the omission of any mention of euro weakness in communiques issued by the Group of Seven most industrialised countries, whose finance ministers met in Japan last weekend.

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Just a day after the euro again  fell below parity with the dollar, the chief economist of the European Central Bank (ECB), Otmar Issing has said that the single currency had "significant" upward potential. 

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Affected by robust durable goods data  newly released by the United States, Europe's single currency, the euro, continued to trade below parity with the dollar Friday morning.  It recovered slightly to hover within a fraction of a percent  of its historic low against the dollar, posted Thursday at $0.9870. In the afternoon, however, the tailspinning euro tumbled to a new  life-time low on Friday afternoon, plunging through the 98-cent threshold to a nadir of 0.9763 dollars. Investors started selling the single European currency for  dollars again after strong economic data from Washington highlighted the gulf between the buoyant US economy and the sluggish euro zone, analysts said.

European Central Bank officials indicated they were considering raising interest rates to keep inflation in check as the euro fell to yet another record low against the dollar.   Issuing the first warning that rates could rise since last November's increase, Bundesbank President Ernst Welteke said that inflation risks in the euro economy are now ``clearly on the  upside'' and that the ECB will be ``very vigilant.'' Bank of  France Governor Jean-Claude Trichet told Bloomberg News the ECB is``focusing on a policy of stability'' and that the euro has ``very   strong potential to appreciate.''

Until today, ECB officials have downplayed the euro's drop  and said that the currency should rise in coming months as euro  zone growth gains momentum. Analysts say the ECB is likely to raise the benchmark rate from the current 3 percent by end-March, and possibly earlier, to stem the euro's decline and to rein in quickening money supply growth. "No central bank in the world can  afford to neglect exchange rate developments," said Bundesbank president Ernst Welteke on Friday, as the single currency fell ever lower against the dollar.

The euro-zone money supply, as  measured by the M3 indicator, accelerated again in December, but analysts said the pick-up resulted from statistical effects and the underlying trend was benign. Figures published by the European Central Bank (ECB) on Friday  showed that M3 money supply expanded by 6.4 percent in December on a 12-month basis, faster than the rate of 6.2 percent reported in November, and well above the ECB's growth target of 4.5 percent.

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The US Fed increased its target for the federal funds  rate -- the interest that banks charge each other on overnight loan
-- to 5.75 percent from 5.50 percent.  It also raised its (mostly symbolic) discount rate, the interest  that the Fed charges to make direct loans to banks by a quarter point to 5.25 percent from 5 percent.

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The interest rate on the main refinancing operations of the Eurosystem is raised by 0.25 percentage point to 3.25%, starting from the operation to be settled on 9 February 2000. The interest rate on the marginal lending facility will be raised by 0.25 percentage  point to 4.25%, with effect of 4 February 2000. The interest rate on the deposit facility will be raised by 0.25 percentage point to 2.25%, with effect of 4 February 2000. The Swiss National Bank and the Bank of Canada also boosted  interest rates, and many analysts expect the Bank of England will  do so again next week as well.

The euro was stable ahead of the European  Central Bank's interest rate decision and following the widely anticipated US Federal Reserve's quarter-point increases in interest rates overnight. The euro was being traded at 0.9730 dollars from 0.9734 dollars  earlier in Asia and 0.9764 dollars in New York.

The euro rallied in nervous forex trading  after an initial fall, following the European Central Bank's announcement of a quarter of a percentage point rates rise. The euro was trading at 0.9765 to the dollar after falling to  0.9701 just after the rates announcement. Ahead of the decision, the
currency had strengthened to 0.9753 dollars compared with 0.9730 at the start of the day.

Comments by Duisenberg.
The decision to raise rates should not be seen as a ``panicky  reaction'' by the ECB to bolster the euro.``There was no formal vote'' on the rate raise. The quarter point increase was the ``preferable'' decision. It was ``pure coincidence'' that the U.S. Federal Reserve and the ECB raised rates in the same week. The ECB wanted to  counteract the euro's impact on inflation.

Duisenberg also said he didn't agree with criticism that ``this time we did not prepare markets at all'' for an interest rate increase. ``I think the contrary is true. If you carefully listen to or read the statements I made last Monday, the Vice President made whilst in Davos, some of my colleaguyes made in weeks before that, even the statement we togewther delivered a  month ago, then all the signs were in the air that you could  expect something'' to happen on interest rates.

The fall of the euro ``is contributing to increases in import  prices.'' The decline is ``becoming a cause of concern for the  outlook of medium term price stability. Import prices can be  expected to rise further.'' Duisenberg added that political factors, too, had an impact on the fall of the euro. Duisenberg added that he still sees ``strong potential'' for  the euro to appreciate against the dollar.

``It's crucial for wage negotiators to be able to rely on the   maintenance of price stability in the medium term.'' ``It is our intention to maintain price stability. In order  to maintain price stability monetary policy needs to act in  forward looking manner'' and in a ``timely manner.'' Today's decision to raise rates was both ``a warning and an  assurance to the labor markets.''

``Growth is now robust. To maintain these favorable  conditions, social partners must keep wage increases in line with   price stability. Governments have to enhance the growth   prospects'' through structural reforms.''

``M3 will be influenced by base effects but we expect to see  lower figures in coming months.'' ``Inflation risks are now higher than we expected.''  ``Today's decision was taken on the basis of the assessment of risks to price stability in the medium term in context of our  monetary policy strategy. With regard to the first pillar, both  monetary and credit growth still point to a generous liquidity'' situation in the euro zone. Especially the fact that ``private-sector credit growth is growing by more than 10% is indicative of  price risks in medium term.''  ``Price increases in oil and non-commodities as well as in   producer prices have been larger and more protracted and hence pose risks of second-round effects. These risks are of a more enduring nature and are further increased by fact that the  environment'' is favorable for continued economic recovery. ``Inflation on average should remain well below the maximum of 2 percent this year and in the next year.''

Fourteen of 40 analysts and investors surveyed by Bloomberg News predicted the bank's policy-setting council would boost rates this week. Seventeen said the ECB would wait until late February or March. The ECB last raised rates in November, to 3 percent from 2.5 percent. Short-term interest rate futures indicate investors expect another ECB increase by mid-year. The June contract for three-month Euribor futures has an implied yield of 4.05 percent, 55 basis points above the current three-month lending rate.

The ECB has also warned it may raise rates if unions receive  wage increases that it considers inflationary. Today's decision to  was both ``a warning and an assurance to the labor markets'' that  the bank would fight inflation, Duisenberg said. He has warned  that higher oil prices shouldn't spill over into outsized wage settlements. Western Europe's largest union, IG Metall, said last month  that it will seek pay raises of 5.5 percent for Germany's 3.4  million metals, electronics and car workers this year. Analysts  have warned that average wage raises of above 3 percent are likely  to fuel inflation.

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Austria's benchmark ATX Index, this year's second-worst-performing major index, fell as much as 1.8 percent to a 54-week low as international protests against the  far-right Freedom Party's rise to power intensified.

Portuguese President Jorge Sampaio, whose country holds the rotating EU presidency, added his voice to the chorus of indignation, saying today he'd defer his planned visit to Austria ``indefinitely,'' while New York Mayor Rudolph Giuliani branded  Freedom Party leader Joerg Haider as ``anti-immigrant.''

The ATX extended its year-to-date loss to nearly 12 percent even as new chancellor Wolfgang Schuessel said he'll guarantee his three-day-old coalition with the Freedom Party will adhere to European Union principles. Some investors weren't impressed.``No one loves a stock exchange in a country with political  problems like this,'' said Ronald Kern, who helps manage 20 billion schillings ($1.42 billion) at Constantia Privatbank AG. ``The fears are that the last international investors will leave the market and not return for three to six months.'' Only Belgium's benchmark Bel20 Index has fallen further among major indexes worldwide, declining nearly 16 percent this year.

Kern said stocks that benefit most from tourism, such as Vienna airport manager Flughafen Wien AG and Austrian Airlines  AG, will extend declines if vacationers, repelled by the idea of an anti-foreigner party in power, avoid Austria's ski slopes, lakes  and opera houses.

Bookings by Belgians alone have fallen by between 20 percent and 30 percent from a year earlier, the Austrian Press Agency reported, citing a representative for Austrian Advertising in Brussels. Belgian Foreign Minister Louis Michel last week described skiing trips to Austria as ``immoral.''

The new coalition's judgment on domestic issues is also under fire. It plans to reduce the country's debt by selling as much as 200 billion schillings worth of state assets, such as the  remaining 75 percent of Telekom Austria AG, and by raising taxes on items such as electricity and tobacco. Analysts said the new  government's plan to cut the nation's debt isn't appeasing enough.``No one's looking at the (government's) program right now,'' Constantia's Kern said. ``It's just not an issue at all.''

The two partner parties have also agreed to raise the minimum age at which Austrians can claim state pensions and to combine parts of the national pension administration to reduce costs. ``We are doing this to safeguard the Maastricht criteria and for the euro,'' a spokesman for Schuessel said. ``We have to take measures that aren't popular.''

Some bond investors, though, are skeptical about the new government's ability to stem a swelling budget amid criticism from  abroad and from the opposition and labor unions at home. They are asking for a higher risk premium when investing in Austria,  increasing government borrowing costs. The spread, or the difference in yield, between Austrian 10- year bonds and German bunds has widened to about 27 basis points from about 23 basis points two weeks ago, when the EU first threatened to scale back political and diplomatic relations.

The spread has narrowed, though, from a peak of 29 basis  points on Wednesday as investors welcomed the fact Austria had finally created a government, ending a four-month stalemate during which the country was run on an interim budget.

The parties' plans, however, are receding into the background as political sanctions from EU countries and the recalling of Israel's ambassador have failed to keep the controversial Haider and other Freedom Party members from speaking their minds.

Haider, 50, yesterday threatened to launch a parliamentary enquiry into what he called ``high political treason'' by former chancellor Viktor Klima and current President Thomas Klestil in a  broadcast by state-owned ORF, claiming they encouraged the EU to impose sanctions against Vienna. In the same debate, Haider said ethnic Germans expelled from what was Czechoslovakia should be entitled to the same  compensation as Austrian Jews persecuted by the Nazis.

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European Commission President  Romano Prodi called on employers and unions to put a cap on wage  gains to bring U.S.-style economic growth to Europe and smooth the  European Union's enlargement to the east. ``A good recovery has started,'' Prodi told the European  Policy Centre. He said wage moderation and further deregulation of  services and utilities are critical for Europe to catch up with   the record-setting 107-month U.S. expansion.

The 15-nation European Union economy is likely to grow 3   percent in 2000, edging the U.S. rate of 2.8 percent and putting  Europe ahead of the U.S. for the first time in five years,  commission forecasts show.  Prodi's concerns that excessive wage rises could push up  inflation and derail the recovery come as unions in Germany, the EU's pacesetting economy, demand boosts of as much as 5.5 percent, about four times the inflation rate. Fears of a wage-price spiral were partly behind last week's  European Central Bank decision to raise the main interest rate for the 11-nation euro zone by a quarter-point to 3.25 percent, the  second increase in three months.

The European Central Bank  will not balk at ensuring price stability for the 11-country euro   region, and structural reforms are necessary to further stimulate growth, ECB Chief Economist Otmar Issing said. ``The Eurosystem's monetary policy . . . will not slip into any pitfalls,'' Issing said in prepared remarks at a lecture organized by Luxembourg's central bank, adding that the bank will ``safeguard price stability while allowing the economy to realize  its growth potential.''

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European Central Bank president  Wim Duisenberg said in an interview that the bank will do "nothing directly" to halt the fall of the euro, insisting that the currency will rise without intervention.    Speaking to Friday's edition of the Sueddeutsche Zeitung  newspaper, Duisenberg said the decline in the euro, which has seen the single currency slip below parity with the dollar in recent weeks, has affected the image of the ECB.    "But if you're asking me what I am doing against the exchange  rate weakness, the answer is, nothing directly."  "We cannot and should not try to influence the exchange rate  level directly," he said.

The euro continued its fall Thursday with one euro worth 0.9864  dollars in late London trading.   Duisenberg said the ECB does not rule out direct intervention on  the foreign exchange markets, but he said the bank was well aware of the limited effect such intervention had.   "If we could coordinate such a step with the United States and  Japan, that would certainly be a possibility at some time. But at present I see no reason for it," he said.  "And then there is a big difference, whether one intervenes with  the market or against it," he said.    Duisenberg said the level of the euro is a "matter for  discussion," but not a "target value" for the ECB and the weakness seen so far has been more of an "image problem" than a serious inflationary risk.   But he said if it continued to fall at the same rate as it  declined late last year, the problem may become more significant.  "If the speed with which this happened were to continue, then we  would have a reason for concern at the effects on price stability," he said.

He said the exchange rate was not the reason for the ECB's  decision to lift rates after last week's governing council meeting, although he said it did influence the decision.  "The exchange rate did play a role, in that we implemented the  0.25 pct rate increase -- which would have come in any case -- at the beginning of February because of the weakness of the euro in the second half of January," he said.  In general, Duisenberg said he believed the exchange rate would  become a less controversial topic once the euro recovered from its current weakness.   "I am confident that there will be less talk about the euro,  once our forecasts are confirmed that the euro will gain in value," he said.

Asked to comment on where he sees the level of the currency in a  year's time, he said simply: "Higher."    He reiterated that the weakness which has hit the single  currency was largely the result of the US economy outpacing growth in Europe and he said the signs point to Europe overtaking the United States this year.   He also restated his view that European economies continued to  suffer from over rigid strictures and he criticised in particular Germany's system of unified sector-wide pay agreements.   "Centralisation means that you reach wage agreements which some  businesses can afford and others can't. That is an important part of this inflexibility and I can only advise that something should be changed here," he said.   Asked about future rate moves by the central bank, Duisenberg  said: "We remain vigilant, but we don't want to announce any tendencies for the future, as you can also see in our latest monthly bulletin."

Interest-rate increases by central banks from all of the Group of Seven nations except Japan aren't likely to put much of a dent in global economic growth in the months ahead, analysts said.  The Bank of England boosted its benchmark securities  repurchase rate today by a quarter percentage point to 6 percent. It was the second rate increase by the U.K. central bank this year, and followed quarter-point increases last week by the U.S.  Federal Reserve, the Bank of Canada, and the European Central  Bank, which represents G-7 members Germany, France, and Italy. All have cited the risk that too-fast growth could trigger inflation.

To understand why it may be some time before the central  banks can rein in expansions, you have to go back to the  stimulative impact of the worldwide round of rate cuts in 1998 and 1999 after falling currency values plunged Asian economies into  recessions and Russia defaulted on its debts.``The degree of easing then reflected a genuine risk of  recession'' in the major industrialized nations, said Michael  Hartnett, senior international economist at Merrill Lynch & Co. in New York. Still, the reduced borrowing costs added octane to U.S.  consumer spending on goods from around the world, helping Asian  countries outside of Japan to grow again and boosting Europe's expansion.

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The dollar inched higher against the yen but its  gains were held back by a selloff on Wall Street, which crimped demand for dollars. In late New York trading, the dollar was quoted at 108.99  Japanese yen, up from 108.95 yen late Thursday. The euro was quoted at 98.69 cents, up from 98.62 cents late Thursday.  The dollar has been on a strong streak against the yen and euro  in recent sessions, but the currency struggled Friday amid a downturn in the stock market. The 218-point drop in the Dow Jones industrial average was led by technology shares.  Overall, currency trading was relatively quiet. A report showing  a welcome slowdown in the growth of retail spending in January did little to dispel concerns that the Federal Reserve may still raise interest rates again this year to keep inflation at bay. 

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EuroMTS, the largest electronic trading system for European government bonds, on Friday accused two of its bank members of trying to sabotage its system.  Gianluka Garbi, chief executive, said it detected two banks bombarding the system with   fake price proposals in an apparent bid to slow it down. "These banks are behaving like computer hackers," he said.  EuroMTS's 24 member banks include most of Europe's largest as well as leading US investment banks.   EuroMTS accounts for more than 30 per cent of all trading volumes in European  government bonds and is the main source of liquidity in the market. It handles E14bn (£8.6bn) worth of transactions a day.

Mr Garbi said the two banks were sending millions of price inputs into the system but were not trading on their proposals. EuroMTS is capable of handling 150 price changes a second and would not crash, but  could be slowed down, he said.  Mr Garbi's charges come on the heels of one of the largest incidents of computer terrorism.  Several top web sites, including portal Yahoo.com, bookseller Amazon.com, eBay, the  leading auction site, and CNN's news web site, came under similar attacks by hackers  earlier this week. He refused to name the two banks but said: "We have warned those banks and we would have to expel them unless they change their behaviour. Then everyone would find out who they are."

Mr Garbi said the actions of one of the banks might be due to it experiencing serious  technological problems, but said the other was undoubtedly abusing the system to undermine EuroMTS. He said that bank was openly advertising a system competing with EuroMTS. EuroMTS is the only electronic trading platform not developed by banks or proprietary traders. It was developed by MTS, the Italian exchange for government bonds. It allows large market makers to trade liquid benchmark bonds electronically rather than by  the more time-consuming and expensive over-the-counter method. However, EuroMTS has fierce competition in electronic bond trading.

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None of the 37 analysts and investors surveyed by Bloomberg News  predict the central bank would raise the benchmark   rate from 3.25 percent today.  Eleven forecast an increase on March  30, while 19 predict a rise in the second quarter.

Germany and Italy, the euro  zone's largest and third-largest countries, were warned by the  European Commission to hold the line on public spending in order to keep the 11-nation euro economy on the growth track.  While endorsing the countries' four-year budget blueprints,  the commission, the executive agency of the 15-nation European  Union, warned Germany that business-tax cuts could push up the deficit and told Italy to overhaul its pension system.

Germany needs to implement its tax reforms ``with greatest  caution in order not to risk a lasting deterioration in the structural government deficit,'' the commission said. It also approved the budgets of euro members Spain and Belgium and  outsiders Denmark and the U.K. The report card comes amid signs the European Central Bank  will continue to ratchet interest rates up from the current 3.25   percent, adding to the borrowing bill of Europe's welfare states. A likely combined deficit of 1.2 percent of gross domestic  product in 2000 leaves the 11 euro countries more susceptible to  rising interest rates than the U.S., which is poised for a 2.6  percent surplus, according to commission forecasts.

Any German revenue windfalls should go toward cutting the  deficit below the government's current target of 0.5 percent of  gross domestic product by 2003, the commission said.   Italy didn't get away without criticism of its excessive spending on pensions, which account for 14 percent of GDP. ``Italy faces medium term challenges to public finances from pension and other age-related budgetary expenditures which
should  be urgently addressed,'' the commission said. Monetary Commissioner Pedro Solbes added that Italy is more  vulnerable than most countries to higher oil prices. Spain, Europe's fifth-largest economy, is making progress toward achieving a budget surplus by 2002, for the first

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The euro remained stuck below the  0.99-dollar level here for a fifth day in a row Wednesday, on the eve of interest rate decisions due Thursday by the European Central Bank and the Bank of England.   At 1700 GMT, the euro was trading slightly higher at 0.9838  dollars from 0.9811 dollars late Tuesday in New York.  The dollar traded at 109.44 yen from 109.20 yen late Tuesday in  New York. The European single currency has been constricted since last  Thursday to a narrow range between 0.98 and 0.99 dollars.

In Britain, the government's data bureau reported that key  average earnings data showed the fastest rate of increase since July 1998 in the three months to December, when average pay increased by 5.5 percent.  The increase was sharper than analysts had predicted. The market  median forecast was for average earnings to have risen by 5.1 percent.  The prospect of runaway pay deals set alarm bells ringing in  economists' offices because the Bank of England, which has already raised interest rates four times in the past six months, regards pay as a key cause of inflation.  The wage acceleration data reinforced the probability of an  interest rate rise, analysts said.

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The European Central Bank   left interest rates unchanged at a policy meeting today, putting  off any further increase in borrowing costs until there are more signs of a pickup in inflation.  The euro zone's inflation rate rose to a 28-month high of 1.7  percent in December, and is likely to move closer to the bank's 2   percent ceiling in coming months as economic growth gains momentum, analysts said. German business confidence rose to a more  than two-year high in January, and French employment expanded at  the fastest pace in a decade in the fourth quarter, two reports   today showed. The ECB may raise rates as soon as March 30, when it plans to  hold a press conference after a meeting in Madrid, analysts said.  Officials held today's council meeting via a telephone conference.

The euro, which declined to a record low at the end of January,  has picked up in the last three days.   The currency rose 0.5 percent today to 99.17 cents, and was   little changed after today's rate announcement. The yield on the 10-year German bond fell 3 basis points to 5.56 percent. ECB President Wim Duisenberg said a quarter-point rate   increase on Feb. 3 was not a ``panicky reaction'' to support the euro. In its latest monthly report released Feb. 10, though, the  bank admitted the euro's fall has ``become a cause for concern.'' The bank's only other increase was a half-point boost to the  benchmark rate, the amount charged on two-week loans, on Nov. 4. The currency's 14 percent decline since its January 1999  introduction has boosted the cost of imports. The price of goods  imported into Germany, which accounts for a third of the euro  region's economy, rose 1.6 percent in December, the biggest monthly increase in almost a decade.  The ECB has already said it expects oil prices, which more  than doubled last year, and the euro's drop to lead to a further increase in the inflation rate.

Ernst Welteke, Bundesbank president and one of the 17 ECB policy-makers, last week said import prices may rise ``more  strongly than so far expected.'' The day before, ECB Chief  Economist Otmar Issing said he's ``concerned'' the euro's drop may damage public confidence in the currency.  Such comments have persuaded investors the central bank will  raise rates for a third time. The June futures contract for three-month Euribor has a yield of 4.05 percent, 56 basis points above the current three-month borrowing rate, suggesting traders expect a half-point rate increase by late June.

ECB officials have said that accelerating economic growth in  the euro region will help the single currency rebound. The region's economy is likely to grow 2.9 percent in 2000, up from   2.1 percent in 1999, and the fastest pace in a decade, according to European Union forecasts. ermany's Ifo economic research institute said business confidence in Western Germany rose for a fourth straight month in  January, to its highest level in more than two years. The French  government reported that 107,100 new jobs were created in the  fourth quarter in the euro area's second-biggest economy, the  biggest increase in a decade. The Netherlands reported that its    unemployment rate held at a record-low 2.7 percent in January.  So far, however, the pace of growth in the U.S. has been even  faster than in the euro zone, prompting the Federal Reserve to  raise its benchmark interest rate four times in the past eight months to 5.75 percent. The U.S. economy expanded 4 percent in   1999. Higher interest rates make dollar deposits more attractive.

The ECB has urged European trade unions to keep wage  increases in line with gains in productivity this year. The  increase in borrowing costs earlier this month was ``a warning and an assurance to the labor markets'' that the bank will do what's necessary to fight inflation, the central bank said. Western Europe's largest union, IG Metall, said last month it  will seek pay increments of 5.5 percent for 3.4 million German   metals, electronics and car workers. Analysts warned that wage increases of more than 3 percent are likely to fuel inflation.

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The European Central Bank might soon  raise euro-zone interest rates again since inflationary pressures in the 11-nation area are on the increase, the ECB's chief economist Otmar Issing said on Friday. In an interview published in the Financial Times, Issing said  euro-zone inflation was expected to accelerate substantially this year and next year. "This is not to cry alarm. We are not forecasting that inflation  will get out of control," Issing said. "In a forward-looking strategy it is important to act in a  timely manner because, if you act too late, rate increases are much greater, distortions will have already developed and expectations, which are so important in financial markets, will have developed in the wrong direction," he said. The ECB increased its key interest rates by a quarter of a  percentage point on February 3, and left them at those new levels at a meeting on Thursday. But some economists are expecting the bank to tighten credit conditions in the euro area as early as its next meeting on March 2. That is because the latest bout of weakness in the euro and  higher raw materials, and oil, prices are helping to stoke inflationary pressures in the euro zone. "The decline in the euro has contributed to upward risks for  price stability, especially because the world economy has now really changed towards quite high growth," Issing said. "Raw materials prices are on a rising trend, and it's not just oil." Annual euro-zone inflation reached 1.7 percent in December and  some economists expect the figure for approach or even exceed two percent, the ECB's ceiling for price stability, in January or February. But Issing said at a conference in Donaueschingen in southern  Germany late on Thursday that the current acceleration in inflation was likely to be only temporary and inflation would ease again soon. Nevertheless, that was no cause for the central bank to relax  its vigilance, he warned. Asked about the significance of the stronger-than-expected  business confidence data for Germany released on Thursday, Issing said that the figures showed that the German economy was recovering. "Germany is joining signs of stronger growth in the euro area.  It was high time," he said. But a single piece of data on its own would not affect the ECB's  decision-making on interest rates, Issing said. On Thursday, the Ifo economic sresearch institute in Munich said  that its closely-watched business climate index rose to 100.1 in January from 99.6 in December.

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Depending on whom you believe, Japan is either crawling out of its worst recession in half a century and building the base for a durable  recovery, or sinking inescapably into debt. Starkly different reports in recent days by two leading international credit ratings agencies, Standard & Poor's Corp. and Moody's Investors Service Inc., highlight a split in views on the risks facing the world's second-biggest  economy.

Moody's announced last Thursday that it might downgrade government  bonds issued in yen because of the explosion of public debt. But Tuesday,  S&P reaffirmed its top-notch rating on the view that the government could  manage its debt burden. Yet even if S&P's more benign view is true, the government will still come under pressure this year to come up with a plan to bring debt under control   through tax hikes or sharply reduced spending. And that raises concern  about whether the country's fragile economic recovery could survive either course of action.

The action by Moody's reminded the markets of the nightmare scenario of a giant economy, addicted to fiscal stimulus and losing its punch, slipping so  deep into debt that it could not grow its way out. The government has spent more than 120 trillion yen ($1.08 trillion) since 1992 trying to revive the economy from the funk it tumbled into with the  collapse of the country's asset-price bubble of the late 1980s. That has left  Japan with a public debt soon to equal 130 percent of gross domestic    product - the worst ratio in the industrial world.

S&P, by contrast, largely buys the government line that substantial  government spending and a year of near-zero interest rates leave the  economy poised to recover under its own steam, allowing a prudent paring of debt in coming years. Government debt is ''manageable in the context of  Japan's economic and external strengths,'' S&P said in affirming Japan's  AAA rating.

The government is gambling that a decade of deficit spending is about to   pay off, with a recovery that will lay the groundwork for paying off the  worst debt in the industrial world.   But financial markets, after bidding up the yen and Japanese stocks last   year on signs of a strong recovery, now are focusing instead on  expectations that Japan slipped back into technical recession in the second  half of 1999.   Despite the vote of confidence from S&P, the yen continued to slip against   the dollar and the euro on Tuesday. Though a weaker yen helps Japan's   powerful exporters by raising the value of overseas sales, it could eventually  increase inflationary pressure, threatening the ultra low interest rates that have kept Japan's debt-service burden in check.

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The euro eased a bit against the dollar Wednesday as dealers locked in profits from a rally fueled by talk that global interest rates would need to rise more.   In 4 P.M. trading, the euro slipped to $1.0030 from $1.0031 on Tuesday.  Market speculation is growing that the European central bank may increase  rates again in March. It raised rates by a quarter-point this month to ward off inflationary dangers linked to a falling euro.

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Europe's single currency sank below parity with the dollar  Thursday in the wake of surging U.S. technology stocks and reduced   chances for a European interest rate increase.  In 4 P.M. trading, the euro fell to 99.31 cents from $1.003 late Wednesday, giving up virtually all of its gains for the week. It also tumbled against the yen and the Swiss franc.

The Dow Jones industrial average fell below 10,000 points Thursday, before cutting its losses by two-thirds, hit by concern that rising  interest rates will crimp profits at the consumer, industrial and financial companies that comprise the index.The Dow closed 133.41 points lower at 10,092.32, recovering from an  earlier slide to 9,942.78. The index has fallen about 14 percent from its record high last month.

Alan Greenspan, chairman of the Federal Reserve Board, told the Senate  Banking Committee on Wednesday that interest rates would probably have  to rise to cool the economy and keep inflation in check. But he said that the  central bank was not concerned with the current level of the stock market, which kept money moving into the technology issues that have shown strong  gains over the past year.

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The dollar rose sharply against the euro Friday after strong  U.S. economic data raised the chances for another U.S. interest-rate  increase just as hopes for a similar increase in Europe began to fade.   In 4 P.M. trading, the euro fell to 97.53 U.S. cents from 99.31 cents on  Thursday. The euro's decline, which started in midweek, was blamed both on rallying U.S. technology stocks and on scaled-back hopes for a European interest  rate  increase. Earlier talk of another rate tightening in Europe had lifted the euro above parity with the dollar.

Differences in global growth rates, and the need to tighten credit, were illustrated Friday when the Commerce Department said the U.S. economy  expanded at an annual rate of 6.9 percent in the fourth quarter. The data, revised upward from an initially reported 5.8 percent growth rate,  left little doubt that the Federal Reserve Board would raise its 5.75 percent  federal funds rate by at least a quarter-point in March.

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The European Central Bank and the Bundesbank said they had no comment on speculation the  two central banks were buying euros to boost the single currency's value against the dollar. ``We never comment on any such talk,'' an ECB spokesman said. ``There's nothing to comment,'' a Bundesbank spokesman said.

The euro jumped against the dollar and the yen amid  speculation central banks may intervene in the currency market. The euro rose as high as 98.36 U.S. cents from 96.88 earlier and 96.99 cents late yesterday. Against the yen, it jumped to 107.82,  from 105.74 yen earlier, and 106.13 yesterday.

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The European Central Bank  left interest rates unchanged, though analysts said the euro's  slide to a record low and a pickup in inflation are likely to  prompt an increase later this month. Six of the 32 investors, traders and analysts surveyed by Bloomberg News predicted the ECB would raise its benchmark rate from 3.25 percent this week. Fifteen forecast an increase at one  of the next two meetings, on March 16 and March 30. Officials last  raised borrowing costs four weeks ago, by a quarter point.

The euro's plunge to an all-time low earlier this week left   ECB policy-makers with a choice: raise rates to try to prop up the 14-month-old currency, or do nothing, and take the chance the euro will fall further. Analysts predict the bank will wait.   ECB President Wim Duisenberg said the rate increase on Feb. 3   was not a ``panicky reaction'' to help the euro, though he conceded the currency's decline is pushing up the cost of imports. In its latest monthly report, released Feb. 10, the bank said the euro's fall has ``become a cause for concern.''

 The price of goods imported into Germany, which accounts for  a third of the euro economy, rose for a 12th month in January. The  9.2 percent annual increase was the biggest since 1981. The gap in interest rates between Europe and the U.S., where    the Federal Reserve's benchmark rate is 5.75 percent, draws more   investors to higher-yielding dollar deposits. Faster economic growth in the U.S. also boosts the dollar's appeal, ECB officials   have said. The U.S. economy expanded 4.1 percent in 1999, almost  twice the euro zone's pace. The euro's slide, coupled with a more than doubling in crude  oil prices in the past year, is contributing to a pickup in  inflation. The inflation rate in the euro zone rose to 2 percent in January, brushing against the level the ECB has set as a limit  for the region. Inflation probably accelerated further in  February, a report from Germany showed yesterday. The euro's latest decline was triggered by remarks last week  from Christian Noyer, vice-president of the ECB. He hinted that   investors may be mistaken if they expect another rate increase  right away. Bundesbank council member Klaus-Dieter Kuehbacher said ``nothing will happen before April.'' After these comments,  the euro went down as much as 6.5 percent in  three days, culminating in a selloff Monday that pushed it below 94 cents. The euro has since recovered some ground, rising today  to 97.68 cents. It's still down 16 percent since its debut.

ECB officials have said that borrowing costs in the euro economy are still low. With growth accelerating, analysts say it's  a question of when, not if, the bank will raise rates. Interest- rate futures contracts indicate traders anticipate an increase of  as much as a half-point by mid-year.  The euro economy will probably grow 2.9 percent this year,  the fastest pace in a decade, compared with 2.1 percent in 1999,   according to European Union forecasts.

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The dollar rose against the euro on Friday as a    weaker-than-expected U.S. employment report allayed concerns the  Federal Reserve Board would embark on a series of aggressive interest-rate increases to stem inflation. U.S. Treasury bonds gained after the report on optimism growth in the  world's largest economy may be cooling. Major U.S. stock indexes also   rose. At 4 P.M. in New York, the euro was at 96.12 U.S. cents, down from   96.54 cents late Thursday. The dollar slipped to 107.530 yen from  107.865.

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A widely watched measure of  confidence among executives and consumers in the 11 countries  that share the euro rose to a record in February. The European Commission's confidence index rose for a sixth straight month, to 106 from a revised 105.6 in January. Some 50,000 companies and 25,000 consumers are questioned each month   for the continent's biggest confidence survey.

Optimism among manufacturers surged, the report showed, as   the euro's decline boosted exports. The euro region's economy, about three-quarters of the size of the U.S., is likely to grow at its fastest pace in a decade this year, expanding 2.9 percent,  up from 2.1 percent in 1999, according to forecasts from the commission, the European Union's executive agency.   Faster economic growth and the euro's 17 percent decline   since its introduction 14 months ago are boosting inflation, however. The euro region's inflation rate rose to 2 percent in   January, the ECB's ceiling, and anecdotal evidence suggests  prices rose further in February.

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European Central Bank Vice-President Christian Noyer in an interview with German weekly newspaper Welt am Sonntag spoke on the outlook for interest rates in Europe. Noyer said a rise is imminent, but wouldn't give a date. ``I cannot rule out a rise in interest rates in the near future,'' Noyer said. ``As to an exact date, this we at the ECB do  not know beforehand. ``The euro's weakness is a danger to price stability. When we see price stability at risk, we take action. At the last ECB meeting we decided a rise in interest rates wasn't necessary yet. Circumstances, however, are ever-changing. ``I can assure you interest rate policies at the ECB won't  pose a threat to economic growth in Germany or Europe as a whole. We want to achieve long-term economic growth without the threat of  inflation arising,'' Noyer said. Reacting to the accusation ECB interest rate policies lack transparency, Noyer said: ``The reproach is unfair. The ECB's interest rate policies are as calculable as those of the U.S. - or as incalculable.''

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Bundesbank fights attempt to strip it of debt powers (Financial Times).

The Bundesbank went on the offensive on Monday against a proposal by the German government to reduce  its powers, declaring that such efforts could undermine Germany's international standing. "A reorganisation of the Bundesbank must not gamble  away the high reputation and confidence that this institution has enjoyed in society for decades," said Ernst  Welteke, the Bundesbank president. "In the end, it's all about Germany playing a role that is appropriate to its economic importance in the international context. For that, a strong central bank is necessary," he added.

Mr Welteke was referring to a government proposal to strip the Bundesbank of its responsibility for managing the national debt and to hand over the task to a private agency. Such a step would significantly diminish the Bundesbank's authority less than two years after it relinquished control over German monetary policy to the European Central Bank.

Mr Welteke, speaking at a banking ceremony in Berlin, said: "For the German population, the Bundesbank was and is an anchor of stability and trust. In the new circumstances, its structure must be tightened up. But tightening it up does not mean shattering it."  He said the success of the Bundesbank, which is revered in Germany as an architect of the nation's post-1945 economic success, helped explain why Germany paid less interest on its government bonds than any other euro-zone country.

The use of independent agencies to manage government debt is an accepted practice in other European countries, but Bundesbank officials are resisting its introduction in Germany on the grounds that it may encourage excessive use of short-term debt. The Bundesbank, which manages about DM1,500bn (E767bn, $740bn) in government debt, has preferred to build up a market in long-term bonds, especially 10-year instruments, in which interest rates are more stable.

Mr Welteke said that, for Germany to maximise its position in the Eurosystem, which comprises the ECB and the euro-zone's 11 national central banks, "the  Bundesbank's responsibility for debt management should be maintained and broadened, not diminished". Hans Eichel, Germany's finance minister, suggested earlier this month that he was "ready to make a deal with the Bundesbank". But he said the government had a duty to ask whether the debt management system now was efficient enough and represented the best use of taxpayers' money. 

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     At today's meeting (which was also attended by the President of the European Commission, Mr. R. Prodi) the Governing
     Council of the ECB took the following monetary policy decisions:

        1.The interest rate on the main refinancing operations of the Eurosystem will be raised by 0.25 percentage point to 3.5%,
          starting from the operation to be settled on 22 March 2000.
        2.The interest rate on the marginal lending facility will be raised by 0.25 percentage point to 4.5%, with effect from 17
          March 2000.
        3.The interest rate on the deposit facility will be raised by 0.25 percentage point to 2.5%, with effect from 17 March
          2000.

     Following the regular examination of the outlook for price developments in the euro area on the basis of the latest information
     on monetary, financial and other economic developments, the Governing Council confirmed the assessment which was
     presented by the President of the ECB in his introductory statement at the press conference after the Governing Council
     meeting on 2 March 2000, as well as in the following issue of the ECB Monthly Bulletin. As noted there, economic conditions
     and prospects for the euro area appear to be better at present than at any time in the past decade. At the same time, upside
     risks to price stability were seen as a reason for vigilance. Today's decision addresses these upside risks, thereby contributing
     to maintaining the favourable outlook for the euro area economy.

     With regard to the first pillar of the monetary policy strategy of the Eurosystem, the prolonged deviation of M3 growth from
     the reference value of 4 1/2% points to the existence of ample liquidity in the euro area, especially when seen in conjunction
     with the continued strong growth of credit granted to the private sector.

     Considering the second pillar, most indicators and forecasts point to increasing upward pressures on consumer price inflation
     over the medium term. The strong rise in oil prices and the downward movement of the exchange rate of the euro in the past
     are putting upward pressure on import costs and producer prices. In the context of a strong cyclical upswing, there is a risk
     that these developments could, via second round effects, have lasting effects on consumer price inflation.

     Today's increase in ECB interest rates follows the interest rate decisions taken on 4 November 1999 and 3 February 2000
     and continues the policy of countering these emerging upside risks to price stability in a timely and pre-emptive manner. By
     ensuring a non-inflationary environment, this move will contribute to ensuring sustainable economic growth in the euro area.

The move was widely anticipated.   According to some observers, who suspect that the ECB reacts to the US FED, one reason that could have played a role in motivating the decision to be taken on March 16, instead of March 30, is that the US FED is expected to announce a rate increase on March 21. The interest increase failed to strengthen the euro. Overall, monetary policy in the euro area is still expansionary.

From the FT: Easing on the accelerator, Friday March 17, 2000, page 18
The European Central Bank's intention to raise interest  rates was clearly telegraphed, and pre-emptive. Its  decision to move by a quarter point rather than a half  point was well-judged. When the Bank left rates on hold at its policymaking   meeting at the start of the month, Wim Duisenberg gave  a press conference that did less to explain why rates had   been left hanged, and more to make the case for an imminent increase. This was followed by the ECB's monthly bulletin, which highlighted the upside risks to inflation. The fact that the ECB waited two weeks to raise rates was because it did not want to surprise anyone.

 On Thursday, it nudged its benchmark rate from 3.25 to 3.5 per cent. Its explanation stressed concern that the rise in oil prices, which has accounted for  most of the rise in headline inflation, together with the falling euro could lead to  second-round effects if companies increased their prices and workers their wage demands. Against the background of a cyclical recovery, these, possibly  temporary factors, were seen to have increased the inflation risks.   These risks are modest. Even if the ECB's upper limit of 2 per cent is breached in   the near term, it is set to decline. The average for 2000 as a whole should be  comfortably below 2 per cent. But central bankers have to look ahead. Less helpful was its decision to pay lip-service in its statement to the fact that   broad money growth continues to be above the ECB's reference range of 4.5 per  cent. M3 was overshooting the reference range when the ECB cut rates last year. And the rate of money supply growth has come down sharply over the past three  months. Hopefully, as ECB policymakers become more confident, they cease to  focus on this confusing indicator.

Monetary conditions in the euro-zone still remain accommodative. The ECB has now raised rates by 1 percentage point since last November. But, at 3.5 per cent,   the benchmark rate is at a historically low level. Furthermore, the rise in inflation in  the euro-zone (from 1.7 per cent in December to 2 per cent in January) together   with further depreciation of the euro (by almost 6 per cent on a trade-weighted  basis since October) means that monetary conditions have hardly tightened.

At the same time, the outlook for growth has improved. The ECB expects the  euro-zone economy to expand by more than 3 per cent this year and next.  Germany and Italy have been the euro-zone laggards. But some private  forecasters now expect them to grow by more than 3 per cent this year. French  growth is likely to be closer to 4 per cent.  The outlook for the euro-zone looks brighter than at the start of the year. Taking the foot off the monetary accelerator is sensible.

Reserves at the ECB:

The European Central Bank won the endorsement of European Union lawmakers to  double its potential foreign-exchange reserves, bulking up the  bank's defenses against speculative attacks on the euro.  The European Parliament voted for an increase in the reserve ceiling to 100 billion euros ($97 billion) from 50 billion. Final  approval rests with EU governments.  With a bigger war chest, the ECB would ``gain in not only  financial independence, but above all, credibility,'' said Robert     Goebbels, a parliament member from Luxembourg who sponsored the   measure.

While the euro bloc's 11 national central banks sit on  currency and gold reserves of 350 billion euros, the ECB has put   only 44 billion under its direct control and hasn't dipped in to  them to stem the decline of the 13-month-old euro. The euro has traded below one-to-one with the dollar since Feb. 25, encouraging speculation that the central bank will set   aside its laissez-faire approach and spend some of its dollar  reserves to bolster the currency.

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The European  Central Bank has to counter inflation risks in time to keep prices  in the 11-nation euro economy in check, ECB Chief Economist Otmar  Issing said. ``Monetary policy must have an eye on the future,'' Issing  said in a speech at the Walter Eucken Institute. ``It must counter dangers to price stability in a timely fashion.'' Hopes that inflation is dead have been ``without a doubt premature,'' Issing also said. While inflation rates have come down in most parts of the world, this should not lead policy-  makers to lesson their inflation-fighting efforts.

Issing's comments come one day after the ECB raised its  benchmark interest rate by a quarter point to 3.5 percent, the third rate increase in less than five months. Many investors expect the ECB to raise borrowing costs again in coming months. ``The interest rate increase won't hinder growth in the euro zone,'' Issing told reporters before the speech.

All of 31 analysts surveyed by Bloomberg News after yesterday's move predicted another increase in the refinancing rate, the amount charged on two-week loans, by the end of June. Almost half said the rate will reach 4 percent by year-end.

The ECB is making every effort to explain its rate moves to  the public in order to win confidence, Issing said. Long-term interest rates, however, show that the central bank is already enjoying ``a high degree of trust,'' he said. The yield on the German government's 10-year bond, Europe's benchmark, has dropped about 40 basis points from a high of 5.64 percent in mid-January after the ECB raised rates twice this year.Issing said keeping money supply growth in check is key in  the bank's policy to keep a lid on inflation. Since a number of factors such as oil prices are not under the control of the  central bank, however, it is impossible to make precise predictions on future inflation in the euro zone, he said. Annual inflation in the single currency region was running at  a 2 percent pace in January, up from 1.7 percent in December,  according to figures from Eurostat, the European Union's statistics office.

The dollar is likely to gain next week on confidence an expected interest rate increase by the Federal Reserve will keep the economy growing without a pickup in inflation, drawing investors to U.S. financial assets. Fed policy-makers' announcement Tuesday of their decision on rates will set the tone for the week. A rate boost, coming as oil   prices appear to have peaked in recent days, could benefit U.S.  financial markets and the dollar, some analysts said. Some market analysts predict that the U.S. currency could rise toward the 109-yen level in coming days, and approach 94 cents per euro.

 Although a quarter-percentage-point increase in benchmark lending rates by the Fed, to 6 percent, is widely forecast,  currency traders said the central bank meeting is still the focus of their attention.  A rate boost would highlight that the U.S. economy continues  to race ahead, with growth far outpacing that in the 11-nation euro region, making for better investment opportunities here, analysts said. The euro region economy expanded 2.2 percent last year,  trailing the U.S. rate of 4.1 percent. While European growth is expected to pick up in 2000, it is expected to fall far short of  the U.S. rate.

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A large new European stock exchange unveiled on March 21 by the Paris, Amsterdam and Brussels bourses will have a  stock market listing by the end of the year and has plans to expand into the London and US  markets. Articles from FT  The challenge of Europe's Bourses    Euronext plans expansion

The dollar touched a two-week high against the euro after the Federal Reserve raised benchmark interest rates as expected, and U.S. stocks rallied.   Fed policy-makers yesterday lifted the federal funds rate to 6 percent, its highest level in almost five years, to restrain inflation in the world's biggest economy. The widely expected 25 basis-point increase helped push up the three U.S. key stock   indexes by more than 2 percent. Foreign investors need dollars to buy those shares.The FED raises interest rates.

The European Central Bank (ECB)  declined to comment on Tuesday on a report that Japanese authorities intervened in European markets to buy the euro for yen this month at the direct request of the French finance ministry. "We are not commenting," a spokesman for the bank said.  A report by the Jiji Press news agency, quoting an international  finance source, had said that the French request was made to the Japanese finance ministry, bypassing the ECB. The policy affairs division of the Bank of Japan and the  international finance bureau of the Finance Ministry also declined to comment on the report.

If true, the news could trigger deep concern about the authority  of the ECB over the European System of Central Banks in the euro zone. The Bank of Japan had directly made orders via Japanese and  non-Japanese banks on March 8 to buy the euro after close of trading in Tokyo, Jiji quoted the source as saying. Usually, such interventions would be made via overseas  authorities such as the Federal Bank of New York or the European Central Bank.

France denies asking Japan to intervene to support euro: The French finance ministry on Tuesday denied Japanese press reports that it had asked the Japanese authorities to intervene in European markets to buy the euro for yen earlier this month."France has been a member of the euro zone since 1999 and therefore it is inconceivable that there could have been any specific intervention by France" to influence the euro's exchange rate, a ministry spokesman said. He described as "erroneous" a report from Tokyo on Tuesday by the Japanese news agency Jiji Press that the Japanese authorities had intervened in the exchange markets on March 8, buying euro against yen, at the direct request of the French finance ministry.

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The euro zone's current account  showed a deficit of 6.6 billion euros (6.4 billion dollars) in January, the European Central Bank (ECB) said on Friday.    That compares with a surplus of 2.6 billon euros in December and  a deficit of 2.4 billion euros in January 1999, the ECB said in a statement.  The wider deficit on a 12-month basis was because "a fall in the  goods surplus and a larger deficit for the income account only partially offset the narrower deficits for services and current transfers," the ECB explained.

EU leaders vowed Friday to boldly  embrace the digital revolution to make Europe the world's most advanced economy by 2010, creating 20 million jobs. "The union has today set itself a new strategic goal for the  next decade: to become the most competitive and dynamic knowledge-based economy," declared the final communique of the two-day "dot.com" summit in Lisbon. Such an "e-economy" will be "capable of sustained economic  growth" of three percent or better, "with more and better jobs and greater social cohesion," it said.

"The result of the Lisbon summit go well beyond our  expectations," said Prime Minister Antonio Guterres of Portugal, whose country holds the rotating EU presidency. "Europe comes out of Lisbon with a clear strategy" for the  unfolding digital era, he told reporters -- one with the potential to create 20 million jobs, or five million more than the current number of unemployed. It was the first time, Guterres said, that a European summit had  set "full employment" as a firm target.

Though the leaders did not want to say explicitly, their  ultimate goal is for the European Union to rival -- or beat -- the United States in the unfolding "new economy" symbolized by the Internet. "This is a different sort of document than those that you've  read many, many times before," a British official said, referring to a string of now-forgotten economic utterings from past summits.  The Lisbon summit set out a list of deadlines for EU member  states to strive for -- deadlines that will be reviewed at special EU economic summits that are to be held every spring:
   -- All EU schools are to have access to the Internet by the end  of next year.
   -- Citizens should be able to access "main basic public  services" by electronic means by 2003.
   -- "Low-cost, high-speed interconnected networks for Internet  access" are to be made available in all European countries, and telecommunications markets are to be fully liberalized by the end of 2001.
   -- EU governments are to adopt "as rapidly as possible" by the  end of the year legislation on the legal framework for e-commerce, copyright and related areas and electronic money.

Despite objections from Prime Minister Lionel Jospin of France,  EU leaders enshrined the principle of liberalization of public utilities, though they did not set a deadline for completion.  France's concerns reflected the size and clout of its  state-owned sector, which is busy moving into other European markets even as it turns to the stock markets to find new capital.  Borrowing a leaf from the United States, EU leaders also  envisioned steps to open up venture-capital markets, and make it easier for small business to exploit the potential of e-commerce.

But they stressed that Europe will not sacrifice its  long-established "social model" -- the catch-all phrase that refers to public welfare, unemployment and pension programs. A more social agenda is to be set for the EU summit in Nice in  December when France ends its six months in charge of the presidency, officials said. Leaders argued that the wealth created by the new economy can be  harnessed to create new and better jobs, curb poverty and pay pensions to a greying population. The rate of employment, currently at 61 percent of the working  population, should be raised "as close as possible" to 70 percent by 2010, and the percentage of working women increased from 51 percent today to 60-plus percent.  Though that works out to be 20 million additional jobs, the  estimate does not take into account the enlargement of the European Union to include up to 12 new member states by 2010, most of them in the formerly communist east.

"The European social model, with its developed systems of social  protection, must underpin the transformation to the knowledge economy," the summit conclusions said. "Every citizen must be equipped with the skills needed to live  and work in this new information society," it said. "Different means of access must prevent info-exclusion."    It added: "Europe's education and training systems need to adapt  ... They will have to offer learning and training opportunities tailored to target groups at different stages of their lives." Early reaction was positive from UNICE, Europe's federation of  private-sector employers, which took part in a pre-summit meeting Wednesday with Guterres along with public-sector employers and the European Trade Union Confederation. "Reforms are urgent, and a quick implementation of the Lisbon  conclusions is absolutely necessary to enable Europe to catch up in the new digital economy," said UNICE president Georges Jacob.

An international forum studying how to prevent  future financial crises like the one that engulfed Asia in 1997 and 1998 will propose adopting a code of good practices to govern currency trading, a source familiar with the group's report said Friday. However, the Financial Stablity Forum, which is meeting this  weekend in Singapore, will recommend against trying to directly regulate hedge funds, according to the source, who briefed reporters on condition of anonymity. Hedge funds are highly leveraged investment devices such as  Long-Term Capital Management, whose near collapse in 1998 sent shockwaves through global financial markets.

The stability forum is composed of finance officials from the  world's seven richest industrial countries as well as major developing nations and multinational finance organizations, including the International Monetary Fund.     The group will hold discussions Saturday and Sunday in Singapore  and will release the findings of three task forces created last year to study ways to improve the global financial architecture. The U.S. delegation will be led by Timothy Geithner, under secretary of the Treasury for international affairs.    The forum's chairman is Andrew Crockett, general manager of the  Bank for International Settlements in Switzerland, which serves as an international coordinating group for the world's central banks. A major recommendation will be for development of a code of good  practices to govern currency trading, the source familiar with the report said.

It is expected that development of the code could follow the  process used the Foreign Exchange Committee, a group of currency market participants who provide advice to the Federal Reserve in New York, which conducts currency operations for the U.S. government. The forum will also reach a conclusion that hedge funds and  other large financial institutions, including banks, have the capability of destabilizing financial markets in developing countries and for that reason, a code of good practices should be developed, the source said.

The forum will also recommend that offshore banking centers  provide greater disclosure of their activities, something the Clinton administration has been pushing for as part of its effort to halt illegal money laundering activities, the source said.

The recommendations on hedge funds are similar to proposals put  forward by the President's Working Group on Financial Markets last April. That panel recommended stronger disclosure requirements for hedge funds but no new regulatory structure.  The 3,000 or so hedge funds operating in the United States are  largely unregulated although there are a number of federal agencies that oversee banks and securities firms who loan money to the funds. Hedge funds are highly leveraged investment devices often used  to speculate on relative differences in interest rates among different types of securities. The securities are often purchased with less than 5 percent of actual investor capital with banks putting up the balance.

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The euro fell sharply against the dollar Wednesday,  battered by weakness against a surging yen and by rumors of big sales of the single currency by a Swiss bank.  The yen rose after Japan reported a bigger-than-expected rise in industrial  production, sparking optimism for the nation's economic recovery. That  helped it rise against the dollar and the euro. Meanwhile, traders anticipated that the European Central Bank would leave interest rates unchanged for the time being, giving the single currency little   foundation for a rebound.

But technical factors also conspired against the euro. When it slipped below 95.50 U.S. cents, options trades kicked in, sending the euro rapidly below 95 cents to nearly its lowest levels yet. At 3 P.M. it recovered to 95.10  cents, still down from 96.11 cents Tuesday.

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Investors dumped technology stocks on Monday, as the sector suffered under the weight of Microsoft's problems, and money went  flowing into selected old-economy companies. The Nasdaq composite index fell 7 percent, dropping 317.99 points to  4,254.84. Much of that reflected the 14 percent drop in Microsoft, which  fell 15 to 91 1/4 in late trading, after the failure of settlement talks with the federal and state governments that sued it for antitrust violations. A lot of  the money that left technology stocks remained in the market, however, and  the Dow Jones industrial average rose 226.48 points, or 2.1 percent, to 11,154.91.

Political leaders in Japan on Monday were preparing to choose a successor to Prime Minister Keizo Obuchi, who was in a coma and breathing through an artificial respirator after he was hospitalized Sunday with a stroke.

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The euro is becoming the  world's second-most important currency, European Central Bank  Chief Economist Otmar Issing said. ``In terms of bond issuance, it has surpassed dollar  bonds,'' Issing said to reporters after a speech on the euro in Vienna. ``Its performance has only been weak compared with  foreign currencies'' -- that is, the dollar's strength.

The 16-month-old euro has fallen 18 percent against the dollar since its debut on Jan. 1. It hit a lifetime low of 93.90  U.S. cents on Feb. 28. It last bought 96.72 cents, not far from the low, but Issing repeated the ECB has no plans to try to bolster the currency. ``We don't have an internal goal for the euro,'' Issing said. ``We just aim to keep the euro stable within the region. We're working on internal price stability. The international role is connected, but we don't examine this in making policy.'' In that respect, Issing said, the ECB is achieving its goal. ``We have said we expected headline inflation would reach 2  percent and then fall,'' and inflation in February reached 2 percent One reason inflation will slow, Issing said, is further deregulation ``We have seen the telecommunications market deregulation clearly had a braking influence on prices in 1999,'' he said. ``That trend isn't over yet. We expect further influence form telecom and from the energy markets.''

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Editorial comment of FT: ECB's decision, Published: April 25 2000

When the European single currency was launched, there were    fears that the new European Central Bank might damage the region's growth prospects by raising interest rates   unnecessarily in a bid to establish credibility. In fact, a   combination of an accommodative monetary policy and a weak    currency has set the euro-zone on course for a period of  strong growth and falling unemployment.   Output growth in the euro-zone is likely to exceed 3 per cent   this year, much of the improvement coming from the effect of   the weak currency on trade. Business and consumer confidence are high.   Growth is also becoming more evenly spread. The German and Italian economies, which had   been lagging the rest of the region, are now showing signs of strength. Industrial production   in these countries is staging a recovery, having suffered badly in the aftermath of the Asian   financial crisis.  Above-trend growth in the euro-zone economies should not in itself cause price pressures,    as there is plenty of slack due to years of sub-par performance. But there are still risks to the inflation outlook.

At its meeting this Thursday, the ECB's governing council will be poring over European price data. The good news is that annual core inflation is stable, at 1.1 per cent. And wage   settlements so far this year have been reasonable, posing little threat to inflation.  The bad news is that the year-on-year rise in the headline rate of inflation has jumped above   2 per cent, exceeding the ECB's definition of price stability. The main cause was the rise in  oil prices.

 The combination of commodity price rises and a weak currency has also contributed to a steady increase in the producer price index, which is now rising at an annual rate of nearly 6 per cent.   With oil prices now falling, these price rises may prove to be isolated and temporary. But the ECB must assess the risk of second-round effects on the general price level.

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THE ECB raises interest rates.

The dollar rose to a two-month high against the yen Friday, and the euro remained near its record low against the U.S. currency on expectations that economic growth and interest rates in the United States   would continue to outpace those in Japan and Europe. Underpinning the dollar, was the report Thursday that showed the U.S. economy grew 5.4 percent in the first   quarter. That, along with higher employment costs, sparked speculation that   the Federal Reserve Board would raise interest rates several more times  this year, or in bigger steps. 

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M-3 money supply growth, a yardstick of future inflation, accelerated to an   annual rate of 6.5 percent in March, the European Central Bank said  Tuesday. That record pace exceeded analysts' forecasts of 5.9 percent and  the central bank's 4.5 percent target rate.

The euro fell against the dollar Tuesday as reports  suggesting a stronger economic expansion in Europe were overshadowed  by expectations that U.S. growth would continue to outpace the region. ''European data this morning were certainly positive but do not compare  with the U.S. and its encouraging investment backdrop,'' said Lisa  Finstrom, a currency analyst at Salomon Smith Barney. ''U.S. data certainly  don't show any signs of any real deceleration'' in the economy. In 4 p.m. trading, the euro was at 90.87 U.S. cents, down from 91.56 cents late Monday. The dollar fell to 108.510 yen from 108.805 yen.

Shares in the UK's biggest companies are expected to bequoted in euros after the merger of the London Stock Exchange  and Deutsche Börse has been completed as the two exchanges  seek full integration. The move to create a pan-European stock market, to be called I   iX, was announced on Wednesday after the board of the UK  exchange met on Tuesday night. The board of the Frankfurt operator has already backed the move. The proposed merger will also include a link with Nasdaq, the US technology stock market.

The new exchange will be based in London. It is understood that it would initially see  German and UK stocks quoted in their respective domestic currencies, euros and sterling. UK stocks would also be listed in euros when the merger was completed, which could take up to a year. Quoting UK stocks in euros as well as pounds would broaden their appeal to European  investors. But it would renew pressure on the government to clarify Britain's stance on the    single currency. Bankers said dual pricing could see liquidity in UK shares switching eventually from pounds to euros.

 Three European Central Bank  officials said they're concerned about the euro's slide to a  record low against the dollar, though they gave no indication  they're planning to buy the currency to buttress it.  The euro's slide ``puts pressure on price stability'' in the  euro zone, ECB Vice President Christian Noyer said. Austria's  central bank governor, Klaus Liebscher, said in an interview that  he's ``not happy'' about the euro's level. Bundesbank President Ernst Welteke told Market News that the euro's drop, which lifts  import prices, could fuel inflation.

The central bankers gave little indication they're planning  to do anything to bolster the currency. Welteke indicated that  foreign exchange intervention is ``problematic,'' and therefore  unlikely. ``It's very doubtful whether intervention can be successful  against the market trend,'' Welteke said. Any intervention in  foreign exchange markets would have to be a concerted effort by  the U.S., Japan and Europe, Welteke said. ``But if one looks, for   example, at current U.S. interests, it's unlikely that concerted  intervention is even possible.''

The euro has declined 23 percent against the dollar since its  introduction at the start of 1999, and today fell as low as 88.98  U.S. cents. A rebound in the European economy and four ECB  interest rate increases in the past six months have failed to halt  the currency's descent.

The euro is slumping against the dollar mainly because  economic expansion in the U.S. keeps outpacing growth in the euro   zone, economists and policy-makers have said. Higher interest  rates in the U.S. also lure investors to deposits in dollars. The  benchmark interest rate in the U.S. is 6 percent, compared to 3.75  percent in the euro zone.

Noyer refused to say whether the ECB was considering  intervention in currency markets to bolster the euro, a move the  central bank hasn't ruled out completely.  ``I will never comment on possible intervention,'' he said.  Liebscher, also declining to comment on the subject, said he sees ``intense discussions'' on the ECB's 17-member governing council  about whether borrowing costs need to be lifted again, if  inflation across the 300-million-person currency union speeds  further. Consumer prices in March rose 2.1 percent from a year earlier, above the ECB's 2 percent limit.

The ECB raised its benchmark refinancing rate by a quarter point to 3.75 percent last week, the fourth increase since early  November. The bank said the danger of inflation is rising because  of a faster economic expansion, an increase in the pace of lending  and money supply growth, and the euro's slump.

ECB members and politicians have repeatedly expressed  optimism that the euro will appreciate against the dollar, as the  economic growth gap between the euro zone and the U.S. narrows. So far, this hasn't happened. ``We are very confident'' a stronger euro ``will  materialize,'' Noyer said. German Finance Minister Hans Eichel  said today the euro ``should be higher.'' Liebscher said the euro  is ``an important factor'' for the ECB's monetary policy.

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The euro climbed briefly over the 90 US  cent threshold, following the release of key US economic data on Friday that raised the spectre of an early rise in US interest rates.    Just before the US announcement, the euro was being traded at  0.8970 dollars. It briefly rose to 0.9005 after the announcement before slipping back to 0.8972 dollars.  Announcing stronger-than-expected nonfarm payroll employment  data, the US Labor Department said the unemployment rate fell to 3.9 percent in April from 4.1 percent in March. This is the lowest unemployment rate since January 1970 when it was also 3.9 percent    Hourly earnings rose 0.4 percent in April to 13.64 dollars and  were up 3.8 percent year-on-year, marking the highest annual increase in hourly earnings since last July.    The data raises prospects of an early rise in US interest rates
to cool the economy and can be expected to depress equities trading.

In an unusual statement directed to  ``European citizens'' instead of financial markets, the head of the European Central Bank said Friday that consumers shouldn't worry about the euro's recent decline and promised the bank will ``continue to do all it can'' to control inflation.         ``I understand their concerns, since a persistently lower euro  exchange rate might ultimately lead to higher prices in the shops. It may also undermine the perception of the euro as a stable currency,'' Wim Duisenberg said in statement. ``Therefore, we at the ECB monitor the euro exchange rate very closely.''     ``In order to counter risks to price stability the ECB has over  the past six months taken measures and increased interest rates four times already. It will continue to do all it can to maintain price stability in the euro area,'' he said.         The statement comes a day after the euro plunged to an all-time  low of 88.45 cents against the dollar on Thursday, along with declines against the pound, yen and Swiss franc. The currency for the 11 euro nations has seen a steady decline since peaking at $1.18 just days after its introduction on Jan. 1, 1999.

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Euro-zone finance ministers expressed  concern on Monday about the fall of the euro and repeated that the exchange rate did not reflect economic growth, but dealers reacted by marking the currency down. The ministers sought to reassure markets by insisting that they
would pursue tight budgetary policies and structural reforms.    Many analysts have said that perceptions that some euro-zone  governments are reluctant to challenge vested domestic interests with structural reforms are at the root of the fall of the single currency.   After a meeting lasting nearly three hours, and against a  background of uncertainty on financial markets that the authorities might intervene, the ministers said that they "share a common concern about the present level of the euro which does not reflect the strong economic fundamentals of the euro area."    But immediately after their statement the euro fell to 0.8982  dollars from 0.9008 minutes earlier.  The ministers issued a statement saying:     "The Euro 11 ministers and (EU) Commissioner, and the President  of the ECB share the view that growth is very robust in the euro
area; an increasing number of jobs is being created.  "The ECB is committed to ensure that this growth will remain  non-inflationary.  "Ministers are determinated to speed up ongoing fiscal  consolidation and structural reforms towards a knowledge-based, full-employment economy according to the orientations set by the special European Council in Lisbon, thus increasing the growth potential of our economies.   "In this context, we share a common concern about the present  level of the euro which does not reflect the strong economic fundamentals of the euro area".

Governors from 11 central  banks did not address the question of possible intervention in support of the ailing euro at a meeting here on Monday, the governor of the Bank of England Eddie George said.  The rate of the single currency, which last week dropped to an  all-time low against the dollar, does not reflect the good economic data in the euro zone, George added, speaking after a regular monthly meeting of the G-10 group of central bank governors at the International Bank for Settlements (BIS).  He said the meeting which comprised 11 central bank governors  had included a discussion on the world economy which he said was going through a rather positive period.

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The euro won't rise to parity with the U.S. dollar anytime soon and intervention by the European Central Bank to boost the value of Europe's single currency would merely use up the bank's foreign exchange reserves, said Bundesbank council member Klaus-Dieter Kuehbacher.  Intervention would only be successful with U.S. and Japanese support, Kuehbacher said at a presentation of the annual report of the Bundesbank's Berlin and Brandenburg branch. He said he didn't think the U.S. would currently support such a move.

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The euro crept over the 91-cent threshold  to 0.9118 dollars on Wednesday, as speculation continued of possible intervention to support the weakened currency.    The increse also followed the Bank of England's inflation report  and comments from the Bank's deputy governor Mervyn King that the strength of sterling is unsustainable.

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The European Central Bank was scheduled to meet  later on Thursday to set interest rates for the 11-country euro zone.    While few economists were expecting the bank to announce any changes in  interest rates this week, speculation was rife that the ECB might intervene to prop up the weakened euro, with rumours to that effect already pushing the single currency back above the level of 0.91 dollars on Wednesday.

The euro had also been boosted by attempts by the Bank of England to talk  down the pound, with deputy governor, Mervyn King, saying that the strength of sterling against the euro was "unsustainable".

 Out of a total 37 economists polled by AFP and its subsidiary AFX, all  predicted that the ECB would leave interest rates where they were on Thursday.  But 30 predicted a rate rise at the end of May or during June.   The ECB tightened credit conditions in the euro area on April 27 when it  raised rates by a quarter of a percentage point, bringing the central "refi" refinancing rate to 3.75 percent.    The ECB has thus already tightened the monetary screws four times since  November and interest rates are 1.25 percentage points higher than they were then.

Speculation has arisen that the bank might actively intervene in the  foreign exchange markets to prop up the currency.   Such speculation was fuelled in part by the announcement on Monday that EU  finance ministers had adopted a proposal to double the ECB's official reserves to around 89 billion euros (79 billion dollars) based on a transfer of reserves from the 11 national central banks of the euro zone.  The move significantly increases the reserves at the ECB's disposal in case  of a possible intervention.  In line with its policy, the central bank has steadfastly refused to  comment on the intervention rumours.

But even the influential speculator George Soros, who in 1992 led an  onslaught that drove the pound out of the European monetary board, said last week that it was time for the ECB to intervene.   Nevertheless, most economists said they thought direct intervention highly  unlikely.   Intervention by the ECB alone would be far from effective and the US  Federal Reserve does not appear to be willing to participate in concerted

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The dollar fell against the euro Friday as  European leaders seemed willing to intervene in an effort to revive their ailing currency. The dollar rose slightly against the yen.   In late New York trading, the euro was quoted at 91.89 cents, up  from 90.06 cents late Wednesday. The dollar was quoted at 108.89 Japanese yen, up from 108.53 yen.

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The US FED raises interest rates by 50 basis points.

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The following are comments by Arnout Wellink, president of the Dutch central bank and a   member of the European Central Bank's central council. Wellink was speaking in an interview with Bloomberg News  following the presentation of the Dutch bank's annual report.

On conditions under which ECB might buy euros on the market to support the currency:    ``There might be a moment that it's necessary to intervene.   We said several times already that we would be prepared to  intervene in cases of clear misalignments or in cases of excessive   volatility. But the point is, we never define exactly what we have   in mind when we speak about clear misalignments or excessive  volatility.'' On whether the bank has agreed on what would constitute these  conditions: ``As you know, this is a point we never discuss in public.''

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The euro's 20 percent decline since its debut in  January 1999 is hurting the currency's image, the Bundesbank said.   The European single currency is also undervalued by about 20 to 30 percent, the     German central bank said in its May monthly report, citing international     institutions such as the International Monetary Fund and echoing remarks by    Bundesbank President Ernst Welteke Monday. That's even as growth prospects  ``have shifted in favor of the euro zone'' from the U.S.

``Evidently the internal strength of the euro isn't sufficiently appreciated on  currency markets,'' the Bundesbank said. ``For the reputation of the young currency such misjudgements aren't good.''   The euro has shed 11 percent against the dollar since the beginning of the year  alone. Bundesbank and European Central Bank members have expressed     concern about the euro's fall, as it fuels inflation in the euro zone by lifting the  costs of imports.

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The euro moved sharply higher against the dollar Tuesday,   pushing the currency to near two-month highs.   The euro was helped by further signs of economic strength in Europe, even  as more indications of a slowdown emerge in the United States. U.S. productivity growth slowed in the second quarter, figures showed Tuesday,  while consumer confidence remained high in France during May.

''We got some good, encouraging economic statistics out of the euro zone,'' said Alex Beuzelin, a currency analyst at Ruesch International in  Washington. The reports, he said, reinforced expectations that the European Central  Bank would raise interest rates this week, even as speculation increases that  the Federal Reserve Board is done tightening rates for now in the United   States. Higher rates generally increase demand for a currency by raising   returns on investments denominated in that currency.

In 4 p.m. trading, the euro rose to 95.40 U.S. cents from 94.82 cents on    Monday. ''The growth convergence between Europe and the U.S., which everyone  was talking about at the beginning of the year, might actually be happening,'' said Alex   Blinkhorn, chief trader at Bank of Tokyo-Mitsubishi in Dusseldorf. ''The  general direction for the euro is up.''

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The euro rose to its highest level against the dollar in seven  weeks Wednesday amid expectations that the European Central Bank would raise its benchmark short-term interest rate by a quarter of a   percentage point Thursday, to 4 percent.  ''The overall sentiment is to want to buy the euro,'' said Per Norr of Den   norske Bank.   In 4 P.M. trading, the euro was at 96.19 U.S. cents, compared with 95.40 cents late Tuesday. The euro has risen more than 7.5 percent since it closed  at a record low just below 89 cents on May 4.

 The dollar fell to 105.565 yen from 105.770 yen, its fourth straight daily  decline against the Japanese currency, as economic reports lifted the idea that Japan's recovery was gathering steam. Yen gains are coming on ''the   belief that the economy is on the right track and they'll move away from the zero interest-rate policy,'' which could persuade Japanese investors to keep more money  at home, said Riccardo Gomes, head of foreign exchange at HSBC USA.

The Japanese government said capital spending rose 3.3 percent in the  January-March quarter. Separately, machine tool orders, a gauge of  business investment, rose 23.6 percent in April from a year ago.

The pound fell to $1.5223 from $1.5286 after the Bank of England on Wednesday left its benchmark lending rate unchanged at 6 percent. The     dollar fell to 1.6301 Swiss francs from 1.6465 francs.

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The number of unemployed people in Germany fell  more than expected in May, data released Thursday showed, as the growing economy prompted hiring at companies from computer-services  providers to machinery makers.

Figures from the Federal Labor Office showed that the number of people  looking for work fell to 3.788 million in May, equivalent to 9.3 percent of  the working population, from 3.986 million and 9.8 percent in April.

The labor office figures do not take seasonal factors into account, unlike  data published separately by the Bundesbank. The central bank figures  showed that the number of unemployed workers fell by 27,000, more than  triple the decline in April. The seasonally adjusted rate held at a  four-and-a-half year low of 9.6 percent, the Bundesbank said.

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The dollar rose Friday on a report that the Japanese  economy grew less than expected and after U.S. wholesale price data  bolstered confidence the world's largest economy would continue to grow with subdued inflation.

''Asset markets are still very encouraging'' in the United States, increasing  the chance that overseas money will continue to flow in, said Stephen Gallagher, an economist at Societe Generale.

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The U.K. government denied there has been any change to its policy on the euro after a report claimed the Treasury had assessed  economic conditions could be right for Britain to join in two years' time, the  Sunday Telegraph reported, citing Treasury spokesman John Kingman. ``There is   no assessment on convergence and we will not do one until early in the next Parliament,'' Kingman was quoted as saying. According to the newspaper, Chancellor of the Exchequer Gordon Brown is clashing with other members of the  cabinet, who are pressuring the Treasury to support Britain entering the common  currency soon.

The Financial Times reported Saturday that Treasury ``thinking'' is that British and Continental European economies are converging and that a continuation of the  trend would leave open the possibility of a referendum on British participation in   the euro by autumn 2002.

U.K. lawmakers and union officials stepped up  pressure on the Labour government to promote efforts to adopt the euro instead of   sticking to its wait-and-see stance on whether to join the 11 other European  nations sharing the currency.

Sir Ken Jackson, general secretary of the Amalgamated Engineering and  Electrical Union, and Giles Radice, who heads a House of Commons committee overseeing the Treasury, said Prime Minister Tony Blair's government should be actively campaigning to convince voters to back the euro.

The comments, made to newspapers and British Broadcasting Corp. radio, come  as U.K. Finance Minister Gordon Brown hardened his opposition to changing the  government's line on the euro, which has been in place since 1997. A Treasury  spokesman said Brown would probably reiterate the government position on  Thursday in a speech to leading bankers from the City's financial district.

Jackson, though, said the government ``had to stop ducking the issue'' because  failure to join the euro could cost 3 million manufacturing jobs. Radice said: ``It is  clearly time for cabinet ministers to start putting the case more than they have.''

With polls showing more than two-thirds of Britain's voters opposing efforts to join   the euro, Blair's government has split on how it should approach the issue. Brown along with Home secretary Jack Straw, Deputy Prime Minister John Prescott and   leader of the house Margaret Beckett want to avoid the issue until after the next  general election, which must be held by mid-2002.

The Treasury has spelled out five economic tests that must be met before the  government asks voters to back a referendum supporting the single currency. But support for the Treasury's stand-offishness in regards to the decision has dwindled as some ministers suggested more vocal support for the euro by Britain.

 Some ministers, including Department of Trade & Industry Secretary Stephen   Byers, Foreign Minister Robin Cook and Northern Ireland Secretary Peter  Mandelson, want the government to set out a more persuasive case to scrap the  pound in favor of the euro.

Brown, as head of the government's economic policy, is keen to reassert his  control over the debate and is concerned other ministers are attempting to co-opt  his authority on the euro decision.

He and the other ministers skeptical of the merits of joining the euro immediately have been concerned about the lack of commitment within the euro-zone to step  up economic reforms, such as instituting more flexible labor laws and lowering  taxes, that would help spur economic growth in the region.

The U.K. doesn't need to adopt the euro to   continue attracting major investment banks to the City, London's financial district,   a survey by the London Chamber of Commerce and Industry said.

The business lobby group said the U.K.'s involvement in the currency shared by 11 European nations ranked 21st out of 23 criteria banks say influence their  decisions. About 35 percent of the banks surveyed said the U.K. must adopt the currency to ensure the long-term viability of the City as a financial center.

The findings, from a group whose members are split on whether the U.K. should   join the euro, support Prime Minister Tony Blair's government, which believes a delay on deciding whether to adopt the euro won't hurt industry. Even so, the  lobby said the government must keep taxes low and drive down labor costs to   keep banks happy with basing operations in the U.K.

``The foreign banking community has given a clear indication that for the next   decade at least London is set to remain the world's pre-eminent international     financial center,'' said Simon Sperryn, chief executive of the London Chamber.  ``However, we cannot afford to be complacent.''

Blair's government wants to put a decision on whether to join the euro off until   after the next general election, which must be held by mid-2002. The U.K.'s   finance minister, Gordon Brown, has set out five economic criteria that must be  met before the government asks voters to pass a referendum on the euro, though   some government ministers want quicker action to scrap the pound.

The most significant concern of foreign banks was the cost and supply of workers  in London. With unemployment near a 20-year low of 3.9 percent and wages  rising at an annual 5.8 percent, the labor market, especially for skilled workers, is tight.

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Greece became the 12th country to be  selected for the euro, getting the green light from European Union leaders to join  the common currency in 2001. Now comes the hard part.  The EU decision crowns Greece's efforts to shrink its inflation and budget deficit  to a tenth of what they were a decade ago, and means Greece officially shakes off   its emerging-market label, joining the club of fiscally sound EU economies.  The question now is whether the EU's poorest country will stay the low-inflation,  low-deficit course as it switches to interest rates that are half its own and as EU   aid diminishes.

EU finance ministers confirmed that the Greek drachma will convert to the euro at a rate of 340.75 per euro. It was recently trading at 336.68 per euro.

Over the last decade, Greece has cut inflation to an expected 2.1 percent this year from 20 percent, and reduced its deficit to 1.5 percent of economic output -- half the rate required to join the euro -- from 16 percent. Targets on public debt, long-term interest rates and currency stability have also been met.  The country now pays roughly the same in interest to its bondholders as the U.S.,  a measure of the dwindled risk in holding Greek debt ever since it got on track to   join the euro.

 Greece's credentials got a further boost today from figures which showed May    EU-harmonized inflation at 2.6 percent compared with an average of 1.6 percent   for the three lowest rates in the euro zone. Greece needed to cut inflation to within  1.5 percent of the average to qualify for the euro. At the same time, its 8.75 percent benchmark interest rate must sink towards the  euro area's, currently at 4.25 percent, potentially subjecting the country to   inflationary pressures.   Greek Finance Minister Yannos Papantoniou, who helped steer the country into    the euro, said a strong balance of payments and the fact that Greece would swing    to a budget surplus ``for the first time in history'' next year would help contain inflation.  The euro shrugged off the news that Greece, with per capita economic output of    67 percent of the EU average, would join it next year. The currency hovered near a   two-month high, trading recently at 96.12 U.S. cents.

Euro investors said Greece's qualification was not worrying. What was unsettling    was the prospect of a host of other EU hopefuls, such as in Eastern Europe and  the Baltics, coming on board later on.

 With Greece's economy growing fast -- the EU commission expects it to expand  3.9 percent this year and 4.0 percent next -- there are instead concerns the  government might rest on its laurels and avoid structural reforms such as overhauling the welfare system, which could otherwise cost an annual 15 percent   of GDP in 20 years, and loosen worker hiring-and-firing rules. Also needed is heightened competition in the telecommunications, energy and   transport markets to help cut prices and wrestle down inflation.

With the socialist government of Prime Minister Costas Simitis safely in power after its narrow election victory this year, and Greece now joining the euro, analysts say there is little incentive to undertake reforms urgently for fear of   alienating voters.

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President Wim Duisenberg during its quarterly testimony  to the Economic and Monetary Committee of the European Parliament.

Money growth
Growth in M3 money supply and private-sector credit ``indicated that upward risks  to price stability had increased over the past few months. They needed to be counteracted in time.'' Regional consumer-price inflation, based on European Union standards, ``is not expected to fall significantly in the future.'' "Liquidity developments are still regarded by the business community and the general public as being ample and generous.''

``If you were to relax the definition (of inflation), to my mind that would be a disaster'' because ``it would immediately create inflationary expectations among the public.'' It would be a ``self-fulfilling prophecy.''

On the ECB's 50 basis-point rate increase on June 8: ``The decisions of the Eurosystem should be interpreted as responses to risks to price stability in the medium term before they materialize, rather than as reactions to a situation whereby price stability has already been jeopardized. `In this respect, the recent increases in ECB rates have been motivated by a desire to avoid being compelled to take stronger measures at a later stage.'' ``We wanted quiet for a considerable period to come. We don't know for how long. What we want is quiet and predictability in coming months in the monetary field and this is one of the reasons why we decided to jump by 50 basis points.'' ``We were convinced that if we raised by a quarter point, then immediately market expectations would be that this was only one step further in the range and further rises would have been coming.'' ``We are convinced that raising interest rates to the level that we have now in no  way will frustrate the prospect for robust economic growth over the two years to come.''

On economic growth and reforms in the euro area: ``We are currently observing a strong cyclical expansion supported by strong  productivity growth. Real gross domestic product growth will exceed 3 percent this year and next year.'' ``There is an opportunity from the current favorable economic environment that  should be seized to improve public finances so that the budgetary positions meet  the growth and stability pact'' (requirements). Pro-cyclical spending should be ``avoided.'' ``Further efforts in policy areas are necessary. Reforms in the labor market will be a major contributor of non-inflationary growth in the euro area. Appropriate wage settlements and structural reforms will be important contributions to continued  employment growth and to maintaining .'' ``I'm delighted that we seem to be in for a period of growth in Europe that is robust and well above the trend rate of growth that we have observed for the past 25 years -- being well in excess of 3 percent.''

On European growth outpacing U.S. growth: ``I'm delighted that we are enjoying a sustained period of growth in the future,  which we expect to surpass the U.S. growth at some point in 2001. We will do  everything to make it sustainable and create a climate of stable prices in which investors and consumers can make decisions without the distortion of too high inflation which always hits the people who are least able to defend themselves  from it.''

On the U.K. and the euro: "The window of opportunity is becoming increasingly open. It's there and there are  certain obstacles to be overcome, mainly of a psycho-political nature. On economic conditions in terms of inflation, the budgetary policy, interest rates, more and more point in the direction that the U.K. is joining forces with the euro area. The economic conditions are increasingly there.'' ``As far as foreign exchange developments are concerned, in my mind they are  not yet optimal for the U.K. to be a full participants at this rate. As long as it's true that the euro has (gotten weaker), the same could be said in the other direction  for sterling.'' Under the Maastricht treaty, candidates for the euro need to insert their currencies in the European exchange-rate mechanism for two years before swapping their currency for the euro. The U.K. has refused to insert sterling in the   ERM, a currency grid.

On Irish inflation: Recent developments in the Irish economy are ``worrying,'' said Duisenberg,  referring to the nation's inflation rate of 5.1 percent, the highest in the euro region. Duisenberg said that there was nothing the ECB could do to help cool the  economy and that it was up to the national government to take action. Still, the  strength of the nation's economic growth means there's now ``net immigration to Ireland after two centuries of net emigration. That's a historical achievement.''

On unemployment in the euro region: "In 2002, we expect the average unemployment figure will be for the first time starting with a 7, in other words below 8 percent for the first time in years.''

On the euro: ``The downward trend (in the euro) is over,'' Duisenberg said earlier, when asked whether he expected the European currency to rise in coming weeks.

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Borrowing costs in the euro single currency zone edged higher Tuesday as the European Central Bank began providing funds to  banks under a new system that analysts say could clear the way for a further  upward creep in interest rates. Under the new lending method, the ECB is providing funds to banks through an auction involving variable interest rates, a system modeled on one employed by the U.S. Federal Reserve. Banks effectively bid for funds at the  rates they are willing to pay; under the old system, short-term funds were provided at the ECB's fixed benchmark rate.

On Tuesday, the 11-nation central bank allocated funds at 4.29 percent and higher, with an average rate of 4.32 percent. That was slightly above the previous fixed rate of 4.25  percent, which was set as the floor for the bidding. Disbursing funds to banks is a fundamental exercise for any central bank, giving it the instruments to fine-tune how much money is available in an   economy for loans and at what interest rates.

The young central bank, which began operations last year, had run into a slew of problems with its weekly lending operations. With interest rates low and the economy expanding, banks tried to crowd each other out to get as many funds as they could get at the fixed rate. The ECB found it difficult to  evaluate the economy's demand for fresh cash. To keep bidding honest, the ECB announced three weeks ago that banks  would compete among each other for central bank cash by bidding against each other for the rates at which they get central bank loans.

The ECB went out of its way to emphasize that it wanted to keep rates as  steady as possible, at least for now. Before it announced the switch to weekly variable-rate tenders, it waited until it had increased its benchmark rate by an aggressive half percentage point   several weeks ago in an effort to forestall further official rate increases in the   immediate future. And it set a floor in the auction with a ''minimum bidding  level'' of 4.25 percent, which anchors the market near the old rate.

But despite the central bank's protests to the contrary, analysts say the stage   is now set for a weekly ritual of salami-slice increases if banks make  increasingly higher bids. As growth accelerates in the euro zone, so does demand for loans by  consumers and businesses. That demand could keep banks bidding aggressively each week for funds, analysts suggest.

 One effect of the change - if it does, indeed, lead to higher rates - could be a   shot in the arm for the euro, the beleaguered single currency. As interest  rates rise, demand for a currency often grows because investments  denominated in that currency provide better returns. The euro got a small boost Tuesday, rising to 94.39 U.S. cents in midday trading from 93.68 cents a day earlier, as investors bet that the interest gap   between the United States and Europe would shrink.

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The euro's exchange-rate value is a closely watched gauge of monetary policy, and its decline has been ``a matter of concern,'' European Central Bank council member Jean-Claude Trichet said.  At a press conference presenting the Bank of France's annual report for 1999,   Trichet added that the euro's depreciation last year drove up production costs and  overall prices. The currency lost 14 percent of its value last year, and has dropped 18 percent  since its Jan. 1999 launch, driving up the cost of imported goods, including oil.  Analysts attribute the decrease to the fact that the U.S. economy's 4.2 percent   growth rate in 1999 exceeded the euro region's 2.3 percent rate, luring capital  away from Europe.

 ``The depreciation of the euro seen in 1999 is a matter of concern because it  causes production costs and the general price level to rise,'' Trichet said, adding   that among the indicators the ECB watched to set rates ``the exchange rate of the euro is an important monetary policy indicator.'' Trichet recalled that the currency's depreciation reflected ``and reinforced''   negative financial flows out of the region in 1999. He said the euro ``has strong potential for appreciation.''

At the same time, the Bank of France governor issued a bullish assessment of  economic conditions in both the broader euro region and in France, the area's No. 2 economy.  ``The French economy, like the euro area, is enjoying favorable monetary and  financial conditions, and high competitiveness,'' he said. ``These factors are  facilitating a durable non-inflationary upturn in activity.''

France's economy is poised to grow by at least 3.6 percent this year, the fastest pace since 1989. Rising consumer spending, investment and exports will push   growth to a rate that is set to outstrip other European Group of Seven countries --Germany, Italy and the U.K. -- for the third year in a row.

Trichet added, though, that monetary policy alone could not galvanize growth and job creation, and reiterated the Bank of France's annual plea for the government to  cut public spending, reduce the deficit, and loosen labor laws.

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Consumer prices in the 11- country euro zone  rose at the fastest pace in four years in June, increasing the likelihood that the European Central Bank will raise interest rates to slow the economy and fend off   inflation.   Prices increased by a greater-than-expected 0.5 percent in June from May, the   biggest gain since February 1996, the European Union's statistics office said.   Compared with a year earlier, prices rose 2.4 percent, the most since May 1996.

Most of the increase was the result of higher oil prices, which boosted the cost of   heating and gasoline, while persuading some manufacturers to pass on their higher costs to customers. Growth in the economies of the 11 nations that share    the euro is likely to expand at the fastest pace in a decade this year, making it  easier to raise prices, analysts and executives said.

Euro's Decline

 The euro's 7 percent decline against the dollar this year has increased the cost of    many other raw materials, by raising import prices. With the euro region's    economy expanding at a 3.5 percent annual pace, companies are now more free    to pass on they're higher costs to customers.

The yield on September interest rate futures contract, a gauge of investors'   expectations for ECB rates at end of the third quarter, today rose 3 basis points    to 4.90 percent, after the report fanned expectations for further rate increases.

The ECB has raised its benchmark refinancing rate five times in seven months, to 4.25 percent, to hold back economic growth in an attempt to cool inflation.    Twenty-one of 27 analysts surveyed today by Bloomberg News said they expected an increase in rates of either 25 basis points or 50 points.    The U.S. Federal Reserve and the Bank of Japan are also likely to raise interest  rates in coming months, analysts said. A report today showed U.S. consumer  prices rose a greater-than- expected 0.6 percent in June, the fastest pace in three   months, though excluding oil the increase was 0.2 percent.

U.S. Productivity

Analysts said that the U.S. economy can expand more rapidly than Europe's without fueling inflation, because of higher productivity gains. European labor     markets are more rigid and national markets for industries, such as energy, are   only just beginning to be opened to competition.

The commission, the executive agency of the 15-nation European Union, today   said there was ``an urgent need'' to open up markets for energy and  telecommunications, allowing increased competition to bring down prices. Spain  last month announced a series of regulatory changes intended to help cut prices  in the power, phone and retail industries.

France has been reluctant to open its electricity market. While Germany has  partly deregulated its energy market, the increase in oil costs has persuaded  some utilities to increase the amount they charge. Euro region energy prices rose 2.6 percent in June from May, and 15 percent on an annual basis, Eurostat said.

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The yen soared against the dollar in Tokyo  Wednesday on comments by a Japanese lawmaker that the Bank of Japan might raise interest rates again by the end of this year, traders said.   The yen was quoted at 107.40 to the dollar around 6:00 p.m.  (0900 GMT), up sharply from 108.30 in New York and 108.43 in Tokyo late Tuesday.    "The yen jumped back to the 107 level immediately after the  comments by Liberal Democratic Party lawmaker Ichizo Ohara," said Shigeru Nakane, a dealer at Asahi Bank.    Ohara, an influential lawmaker known for his economic expertise,
reportedly said the Bank of Japan might raise its overnight call interest rate to 0.35 percent by the end of December.

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The euro rallied on Thursday -- after  again sinking below the 0.90-dollar threshold overnight in New York -- amid mounting expectation that the European Central Bank will increase rates to calm inflationary pressures.    The euro was trading at 0.9016 dollars in London trade, compared  with 0.9025 dollars earlier in Asia and 0.9010 dollars late
Wednesday in New York.

Over the course of Wednesday's trading, the euro had fallen to a  session low of 0.8911 dollars, its weakest level for three months.    Against the Japanese currency, the euro was changing hands at  96.63 yen in London, 96.64 yen earlier in Asia and 96.48 yen late Wednesday in New York. The dollar was buying 107.19 yen, compared with 07.09 yen  earlier and 107.40 yen late Wednesday.

Analysts attributed the euro's recovery chiefly to a technical  rebound following Wednesday's sharp falls, although they also cited mounting speculation that the ECB will raise its rates next week.    Expectations of a rates increase, possibly by as much as 50  basis points, were fueled Thursday by German data on galloping producer price inflation.

Any European rates rise could still leave the euro looking pale  in the face of the robust health of the US economy.   The dollar strengthened against the yen in the run-up to  publication later Thursday of US jobless claims and durable goods orders data.

The euro zone had a current account  deficit of 100 million euros (90 million dollars) in June, compared with a surplus of 5.4 billion euros in June 1999, the European Central Bank said on Thursday.  The swing to deficit was largely a result of a decline in the  goods surplus, combined with a wider deficit in the current transfer account, the ECB explained in a statement.

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Ernst Welteke, the Bundesbank president, said it was  necessary to curb price risks "as soon as possible" to ensure  growth continued unhindered by inflationary pressures. Mr Welteke said in a speech in Dusseldorf that the weak euro, rising oil prices and strong growth were fuelling inflation.  He said the ECB was "anything but pleased" with the euro's weakness, which did not reflect    the euro-zone's sound economic fundamentals.

Many observers interpreted this comment as indicating a decisive move by the ECB on Aug 31 -- 50 points rather than 25 points. But some analysts doubtet whether monetary tightening could help restore the fortunes of    the ailing euro.  The single currency hit three month lows this week after Germany's  Ifo business climate index fell sharply, sparking fears the euro-zone's biggest  economy was slowing.  Several economists expect the euro to come under renewed pressure early next week as  any rate rise needed to keep the lid on inflation might hurt growth prospects.

Mr Welteke said he did not share the fear that further rate rises would hit the outlook for  growth. "Monetary policy does not stand in the way of economic recovery," he said.
 

Central Bank governor Bodil Nyboe  Andersen warned Danes Friday not to reject the euro in a September referendum, saying it would force the government to tighten economic policies in a country already hit by high taxes.   In an interview with the left-of-center daily Aktuelt, Andersen
stressed that the government "would have to enact even more rigorous economic policies in case of a 'no' vote."    That meant either raising taxes in a country which already has  one of the world's highest tax rates, or slashing government spending, she said.

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The euro fell to a historic low against  the yen early Wednesday to trade at 94.07 yen, and against the dollar fell to 0.8881.  It subsequently rallied slightly to 94.29 yen and 0.8891  dollars.  Analysts attributed the euro's latest falls to expectations of  aggressive monetary tightening from the European Central Bank, which will announce its decision on interest rates Thursday.  The pound hovered around its lowest levels against the dollar  for seven years, and was trading at 1.4455 dollars.

The European Central Bank is expected  to raise euro-zone interest rates when it returns from a four-week summer break later on Thursday in order to rein in galloping inflation in the single currency area and in face of a fresh bout of euro weakness.  In a poll of 26 economists, 16 said that they are expecting the  ECB to raise its key "refi" refinancing rate on August 31. And 25 out of 26 expect a rate rise by mid-September at the  latest.

The renewed upturn in oil prices, the fresh bout of euro  weakness and strong growth of the euro-zone economy have all added fuel to the inflation fears.  And hawkish comments from ECB council members and the bank  itself in its latest monthly report have only served to reinforce
expectations that the bank will raise rates sooner rather than later.  In fact, a move has already been largely priced in by the  financial markets.

The question was not whether, but by how much the bank would  raise rates, economists said.  Second-quarter GDP figures for Germany, for example, showed an  acceleration in growth in the euro zone's powerhouse economy and pointed to further strong growth later in the year.    Last week, the head of the Bundesbank, Ernst Welteke, expressed  concern at the continued weakness of the euro and the trend in euro-zone inflation, which remains stubbornly above the 2.0 percent level regarded as tolerable by the ECB.

The ECB's chief economist, Otmar Issing, recently warned that  euro-zone inflation was likely to average more than 2.0 percent for the whole of 2000.    Even the publication of relatively benign M3 money supply data  for July on Monday did little to dampen speculation of a rate hike
this week. Thus, the argument for a further rate rise remained intact,  economists said.

Ironically, however, a number of economists argued that the  latest bout of euro weakness was actually due to concern that an overly aggressive rate rise by the ECB would hamper growth of the euro-zone economy.

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 The euro weakened Thursday following an  announcement from the European Central Bank that it was raising interest rates to 4.50 percent from 4.25 percent.   The currency was trading at 0.8902 dollars, down from 0.8948  just before the rates announcement. The single European currency dropped to  an all-time low against the dollar in trading here Thursday, hitting 0.8845 to the dollar at 1635 GMT.

On Wednesday, the euro fell sharply, descending to a record low  against the yen, while hovering barely above its historic low levels against the dollar, as dealers voiced concern that whatever decision the ECB took, the euro would weaken.  They said a 25 basis points rise, as widely expected, might not  be considered sufficiently supportive of the weak single currency, while a 50 basis points rise, as predicted by some forecasters, could impede economic growth in the euro-zone.

In the event, analysts said, 25 basis points probably was the  wisest move and the currency was relatively stable, but they warned that there could be more weakness to come.    Mike Moran, treasury economist at Standard Chartered, said:  "Twenty-five (basis points) was probably the best-case scenario, though it was always a bit of a Catch 22."

In the currency market, the euro rose to 89.70 U.S. cents from 89.43 cents in  late New York trade Wednesday. The euro jumped after the ECB raised its key  rate to 4.5 percent. European notes rose, pushing the two-year yield  to the lowest level in more than two weeks. The yield on the two-year note, among the securities most sensitive to    interest-rate changes, fell 3 basis points to 5.20 percent, the lowest level since  Aug. 15. The 10-year German government bond yield was little changed at 5.30  percent, and September bund futures were little changed at 104.82.

Twenty-nine of 30 economists and investors surveyed by Bloomberg News  following today's ECB announcement said they expected the central bank to  raise rates further this year, with a majority predicting a move before the end of  October.

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The euro climbed back over the  0.90-dollar threshold in afternoon trading Friday after the dollar weakened as data provided the  latest evidence of a cooling US economy. The single currency, which earlier this week sank to a record  low against the yen and hovered just above its life-time low against the dollar, was trading at 0.9006 dollars mid-afternoon Firday. Before the US data, the euro was trading at 0.8930 dollars and  had earlier fallen to a session low of 0.8877 dollars. Official statistics showed US non-farm payrolls shrank by  105,000 in August, the sharpest fall in more than nine years.  The Labor Department also reported Friday that the August  jobless rate edged up to 4.1 percent from four percent in July.

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Nearly two-thirds of Germans would rather  keep the mark as their currency than adopt the euro, according to poll results released by RTL television on Sunday Sept 3.  Of 1,006 people questioned last week by the Forsa Institute, 63  percent preferred the mark to the single European currency, with the number rising to 77 percent in eastern Germany, compared to 60 percent in western regions.  Among those polled who were 60 years old or more, 72 percent  said they would rather keep the mark, a figure which dropped to 56 percent when the respondent was less than 30 years old.  Supporters of the Greens and liberal FDP parties were the most  anxious to see the euro replace the mark, at 82 percent and 79 percent respectively.   On the other hand, those close to the Social Democrats gave the  euro only 38 percent preference, while just 36 percent of Christian Democratic Union supporters said they welcomed the euro's arrival.   The poll also found that 56 percent feared the euro's drop  against major world currencies would accelerate inflation, considered one of the greatest threats to Germany since the financial crisis of 1923.    That concern was much stronger in economically-weaker eastern  Germany (71 percent) than in the west (52 percent), and was voiced more often by partisans of the renovated communist party (79 percent) than by those of other major parties.

Denmark, which along with Sweden and Britain refrained from  joining the European Monetary Union in its initial phase, plans a Sept. 28 referendum on replacing the kroner with the euro. The Social Democratic-led government strongly supports the move.  For months, Danish opinion polls have reflected a close race  ahead of the referendum.  However, a poll published Sunday by the daily newspaper Jydske  Vestkysten showed 51 percent of 1,010 people questioned between Aug. 26-31 favored the euro, while 42 percent rejected.  Seven percent were undecided, according to the IFKA polling  institute. The margin of error was about 3 percent.  The newspaper, based in Esbjerg in western Denmark, attributed  the jump to people who had been undecided making up their minds as the referendum approaches.

British opponents of monetary union moved  their campaign against the euro single currency up a gear on Monday with the launch of a multi-million pound advertising campaign warning of the dangers.  The launch comes as an opinion poll showed support for the euro
slipping, with eighty percent of Britons under 24 saying they did not want Britain to adopt the single European currency.  The anti-euro advertising campaign will cost an estimated two  million pounds (2.92 million dollars, 3.2 million euros) and is being orchestrated by New Europe and Business for Sterling, the biggest eurosceptic lobby groups in Britain.  The centrepiece of the campaign is an image of a set of

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The euro slipped below the 0.89-dollar  threshold on Tuesday as sentiment remained weak and a wave of automatic selling further sapped at the currency, dealers said.    The euro fell to 0.8877 dollars, from 0.8976 dollars in London  on Monday evening.

Some opinions:

Growth
``ECB action is being seen as starting to hurt growth,'' said Niall O'Sullivan, an  economist at Bank of Ireland. ``The market is very
dollar positive.'' He sees the   euro falling to 86 cents within six weeks. The single currency rebounded Friday after a weaker-than-expected  U.S. employment report. ``The view is that interest rates aren't on the euro's side,'' said Haydn Davies, a  strategist at Barclays Global Investors. `The euro has no momentum. Maybe we've seen the best of European'' growth.

Japan
The yen had its biggest decline against the dollar in three weeks on speculation  Moody's Investors Service will downgrade Japan's credit rating soon. ``Overnight there was a rumor that Moody's was considering a sovereign debt  downgrade,'' said Mark Henry, a currency analyst at GNI Ltd., the currency  trading arm of Gerrard Group Plc. It pushed the dollar from 105.90 yen to 106.50, he said.

Uncertainty about EU economic policy

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The euro fell to record lows against the dollar and yen today. The euro crashed below 88 US cents on  Wednesday afternoon to a new low point against the US currency of 0.8790 dollars.  Just hours after breaking through the 88-cent barrier, the  single European currency continued to tumble to the new record value, as it shed some 2.4 percent of its value in a single day of trading. The euro crashed below 87 US cents
Wednesday to a new low point against the US currency of 0.8691 dollars. It also slid to a new low-point against the Japanese currency of 92.42 yen.

Investors continued dumping the beleaguered single European  currency after the US Labour Department published stronger-than-expected productivity data, once again underlining the gulf between the US powerhouse and Europe's stop-start economy.

The single European currency had already plunged to a fresh low  point on Wednesday morning amid a volley of automatic selling. Traders seemed to ignore upbeat figures from Germany which  underlined the positive outlook for both the 11-nation euro zone and its biggest economy. Manufacturing orders in Germany rose 12.7 percent in July, compared with a 13 percent advance in June, a report today showed.

The currency has lost more than 25 percent of its value against  the dollar since it was launched in January 1999, amid a combination of factors that have depressed market sentiment. Analysts predict little respite, anticipating a slump as low as  85 cents in the coming weeks.

European notes fell, pushing the two-year note  yield to a four-day high, amid concern a weakening currency and high energy costs may prompt the European Central Bank to push up interest rates to curb  inflation. The two-year German note yield rose 6 basis points to 5.20 percent, a four-day high. The 10-year bund yield rose 1 basis point to 5.22 percent, while the September bund futures contract fell 0.16 to 105.36. European bonds performed worse than U.S. Treasuries, as the spread between  the 10-year German bund and 10-year Treasury note narrowed to 48 basis points, 7 basis points shy of the lowest since October 1998. In the past month the yield on the 10-year German bund rose 5 basis points, while the 10-year Treasury yield fell 26 basis points.

The difference between three month lending rates and the rate on the interest  rate futures contract for December was 45 basis points, suggesting investors see 50 basis points more of rate rises this year.

The price of crude oil rose to a 10-year high on expectations a third boost to supply this year by OPEC won't rebuild low inventories or slow price increases that threaten to spur inflation worldwide. OPEC representatives meet in Vienna  this weekend to discuss production levels.

Forty-two percent of Danes favor  adopting the euro in a September 28 referendum, a Gallup poll published on Wednesday by the conservative daily Berlingske Tidende showed. Forty percent are against the adoption of the common European  currency and 18 percent remain undecided, the survey revealed.

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 The euro was buying 0.8658 dollars on Thursday morning, close to  a historic low of 0.8630 set earlier in Tokyo. Against the Japanese currency, it bought 91.85 yen, just clear of a Tokyo low of 91.45 yen.

German politicians attacked Chancellor  Gerhard Schroeder for loose-lipped comments as the euro plunged to new lows Thursday, on the eve of a European finance ministers summit aimed at halting the common currency's free fall.  Schroeder said earlier this week that he was not concerned about  the euro's weakness against the dollar because it made German exports cheaper overseas. That contradicted leading European economic officials, who have consistently warned that a weak euro is fueling inflation across the continent because it makes imports
relatively more expensive.

The euro -- which has plummeted 4 cents against the dollar since  last week, losing 4 1/2 percent of its value -- took another nosedive after Schroeder's comments Monday. On Thursday, it hit a new low of 86.35 cents, spurring officials across the continent to hastily try to whitewash Schroeder's gaffe.

The slide in the euro and the sharp rise  in oil prices will be top of the agenda when economy and finance ministers of the 11 euro zone countries meet in Versailles on Friday, officials say.   But the ministers will also for the first time address the  thorny issue of tax reform in their respective countries, hitherto a taboo subject at euro zone meetings and a controversial topic at gatherings of all 15 European Union members.

The persistent weakness of the euro, and prospects for a halt to  the rise in oil prices, are the most pressing issues on the table, however, as the euro fell to a new record low against the dollar overnight Thursday, and oil prices show no signs of falling ahead of an OPEC meeting in Vienna on Sunday.    Euro officials were busy on Thursday insisting that the current  low level of the euro is out of line with the healthy state of the
European economy, after the EU currency fell to a record low of 0.8630 dollars overnight.

French Finance Minister Laurent Fabius and his German  counterpart Hans Eichel agreed the euro's level did not reflect economic fundamentals in a telephone conversation on Thursday.    Meanwhile in Brussels a spokesman for EU Monetary Affairs  Commissioner Pedro Solbes said "the current level of the euro is not appropriate and we are expecting the single European currency to rise in value." "It is clear that everyone wants the euro to rise. This meeting  will crystallise that realisation, and allow us to see what they (euro zone members) are willing to do" about it, said one European diplomat who asked not to be named. France, which currently holds the rotating EU presidency, has  long called for a euro-zone political counterpart to the financial authority of the European Central Bank.

The ECB, however, has argued persistently that governments must  reform and de-regulate their economies to attract the confidence which would underpin the euro.  French Foreign Minister Hubert Vedrine said in a comment  published in the Financial Times on Thursday that the euro needs greater political support to "uphold its credibility with the markets."

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On this friday, the euro remained weak against the dollar, hovering around 0.87  dollars.

Duisenberg: ``If international investors and issuers consider the euro a stable currency they   will hold euro assets to minimize risk in internationally diversified portfolios. In   this context I should make it clear that maintaining stability not only makes a  contribution to improving economic prospects in the euro area it is also a    pre-condition for a currency to play an international role.   ``I should like to take the opportunity to reaffirm that the ECB does not pursue    any exchange rate target in its stability oriented monetary policy strategy.''

The Vice-President of the  European Central Bank (ECB), Christian Noyer, said Friday that intervention to address the current weakness of the euro "is always an option." Noyer's comments were echoed by French Finance Minister Laurent  Fabius who told a press conference that foreign exchange "intervention remains an instrument available at any time" for the ECB.

 The grouping of economy and finance ministers, Eurogroup, and  the ECB said a strong euro was in the  interests of the euro zone, and insisted its current level did not reflect the economic strength of single currency members. They said after their meeting in Versailles outside Paris that
growth remained robust and the euro zone governments were determined to speed up fiscal reform and their overall reform efforts.

European Economics Commissioner Pedro  Solbes scorned on Friday what he termed "a simplistic view of the euro," expressed by German Chancellor Gerhard Schroeder that weakness of the euro boosted German exports. Solbes told the Spanish daily El Mundo, without naming Schroeder directly, that the euro was clearly undervalued and that a strong European economy required a strong currency in the long term.
 Schroeder set off a storm of criticism earlier this week when he said that the decline in the value of the euro would be beneficial to German exports.

"The subject is a little more complex," Solbes told the Spanish daily.   "Positive elements from a depreciation work only in the short
term."   "In the long term, one must strive for a strong currency because that is what fits best with a strong economy like Europe's," Solbes
maintained.  "Europe has no savings or (balance of payment) current account problems, contrary to the United States." "I hope this viewpoint will dominate in the future," he said, stressing once again the excellent economic conditions in Europe.

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Policymakers in the 11-nation euro    zone are unlikely to back up their most recent currency-supportive statement   with hard cash, analysts said.  Hints from finance ministers that the European Central Bank could step into the  currency market to prop up the flagging euro are
hollow, analysts said. The ECB can't raise interest rates too high for fear of choking off economic growth and the  euro's future exchange rate is far from clear. What is more, the U.S. could be loathe to agree to intervention two months before November's presidential election. U.S. Federal Rerserve Board Chairman Alan Greenspan is also on record as  saying market intervention has little impact. The $20 billion rescue attempt for    the yen in 1998 ``barely budged'' the currency, he said.

Bank of Italy Governor Antonio Fazio  refused to raise his forecast for Italian growth this year, saying oil-induced  inflation was likely to keep it below the 3 percent mark.   ``The government has a 2.8 percent growth forecast: I wouldn't stray from that,''
Economic institutes such as Italian employers body Confindustria have recently  lifted their 2000 growth forecast to 3 percent or more for Italy, which last year  ranked as the slowest- growing of the 11 countries sharing the euro. Italian Treasury Minister Vincenzo Visco told reporters at the same briefing that  his government maintained its 2.8 percent forecast even as many economists  were lifting theirs.

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The euro tumbled to a new historic low  point on Monday morning, crashing through the 86-cent barrier, as the market continued to view with suspicion the European Union's approach to the currency's woes, dealers said.

The following are comments by  Eddie George, governor of the Bank of England. He was speaking to journalists  on behalf of central bank governors from the Group of 10 nations after the group's  regular meeting.  ``Everybody welcomed the increase in the oil supply'' and ``the emphasis by   OPEC on seeking to stabilize the price'' at between $22 and $28 per barrel.''   The effect of the oil-price rise was not the same in every country, Eddie George said. Generally, ``the direct impact on consumer prices was less, and therefore   the dampening effect on consumer demand was also less,'' adding this was in    part true in countries with a strengthening currency, like the U.S. ``In the U.S., the rapid improvement in productivity reduced the impact on underlying inflation''   of rising oil prices.  The impact was stronger in Europe, even there ``there wasn't much of a sense of  a dampening in activity'' due to oil, George said.

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Sterling slumped to a 14-year low point  against the dollar on Tuesday, and the euro remained frail, as investors piled into dollars in defence against the oil crisis.  On the eve of the eighth anniversary of Black Wednesday, when  sterling was ejected from Europe's exchange rate
mechanism, the pound slumped through the 1.40-dollar barrier for the first time since 1986, touching a low point of 1.3953 dollars and
then rallied. The euro, which has fallen by 4.5 percent against the dollar in  a week, hovered around the 86-cent mark, close to an all-time low of
0.8567 dollars set overnight in New York. Analysts said the weakness of European currencies was a sign  that investors still see no reason to favour Britain and the euro-zone over the United States as a home for investment.  More than 50 percent of British exports go to Europe -- and the  pound remains close to 12-year high points against the German mark.  The conviction that the Bank of England will not raise rates,
coupled with suggestions of economic slowdown are behind the latest sterling slump.

EU Commission President Romano Prodi said in an interview with  Germany's Stern magazine that concerted intervention by the central
banks of Europe, the United States and Japan to support the euro would favour US interests as well as those of Europe. But he held out little hope of this happening ahead of the  November US elections.

Debate over whether the European  Central Bank should intervene directly on the foreign exchange markets to boost the ailing euro continued to rage on Tuesday.  EU Commission President Romano Prodi hinted in an interview with  a German magazine that he might be in favour of concerted action by the central banks of Europe, the United States and Japan.   But a German monetary official, Bundesbank central council
member of Hans-Juergen Koebnick, suggested in a separate radio interview that ECB intervention would not worek against the combined
force of the global forex markets. Asked in the latest edition of the weekly magazine Stern whether  concerted intervention by the ECB, the Bank of Japan and the US Federal Reserve might help the euro, Prodi replied: "Such action is never easy, especially so shortly before the US elections."  However, "we are now at a point where it would also be in  American interests", Prodi continued, pointing to the high US
current account deficit.    "No-one can live with such a high current account deficit for  ever."  Prodi described the low external value of the euro as  "disappointing," and said that it was "not easy to understand." He said: "Growth in Europe may be a little weaker than in the  US. But the US have had a huge current account deficit for years. In view of these fundamental data, the euro will rise again in value."  One of the most important reasons for the poor showing of the  euro on the forex markets was a lack of a common policy in the region, the EU Commission head argued. "That definitely has an effect on the euro rate," Prodi said.  "We would need an institutionalised, joint economic policy which
supported the ECB."  He was "happy" that the ECB was an independent institution,  Prodi insisted. But the ECB lacked a "political partner for
dialogue".  Asked whether he saw the euro as "a currency without a state",  Prodi replied: "That is exactly my opinion. Even in Germany, you had an independent central bank and a government as well." A European government would boost the markets' confidence in the  21-month-old currency, he argued. "But I don't want to actually use the term federal European government."

European Central Bank (ECB) president  Wim Duisenberg ruled out Tuesday intervening on forex markets to prop up the ever-sagging euro, and predicted it would make a rebound. Speaking in Brussels, Duisenberg regretted what he called the  "serious undervaluation" of the common currency at a time of  "robust" economic growth in the 11 EU states that use the common currency. "The exchange rate is clearly out of line with fundamentals," he  told the European Parliament's committee on economic and monetary affairs. "At some stage it will correct itself." But under persistent questioning, Duisenberg said he did not  believe the euro's present slide represented the kind of "exceptional circumstances" that would justify intervention. "The instrument as such is available, but when and how to use  it, one can never discuss beforehand," he said. Asked if there was anything that could be done to check a  seemingly relentless flight out of euros and into US dollars, Duisenberg replied: "We cannot stop it and we don't want to stop it."

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The French finance ministry denied on  Wednesday a German press report that France was talking to the United States to orchestrate international intervention to bolster the euro.

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Euro-zone gross domestic product grew 0.9 per cent in the second quarter, 0.1 percentage points below consensus forecasts. The rate of increase - the preliminary estimate published by EU statistical arm Eurostat on  Thursday - nevertheless confirms that the economy was still growing at an above-trend  rate. The year on year increase was 3.8 per cent, compared with a trend rate of growth in the eyes of even the most optimistic euro-zone economists below 3 per cent.

The second quarter figures reassured the euro-zone that the export growth of the first  quarter successfully generated a recovery in domestic demand. Domestic demand grew 1.1  per cent in the second quarter, a 0.4 percentage point increase on first-quarter growth. Second-quarter export growth, at 3.5 per cent, trailed import growth by 0.7 percentage  points, after leading it in the first quarter.

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The euro fell to a record against the dollar, as  purchases of the currency by the European Central Bank failed to provide  support, given the continued appeal of U.S. financial assets for investors.  The common European currency sank to its lows for the day after Al Broaddus,  president of the Federal Reserve Bank of Richmond, said in a speech that  although he expects the currency to survive, its drop may spark inflation and  ``raises questions about the viability of the longer run success of the euro.''

The euro fell a fourth straight week against the dollar, shedding 1.5 percent since   last Friday. It sank to an all-time low of 85.25 U.S. cents, from 86.44 late  yesterday. The 20-month-old currency's previous record was 85.50 cents,  reached Tuesday. It also posted its fourth weekly loss against the yen, falling to   91.40 yen, from 93.005, for a drop of 0.6 percent on the week, after setting a   record low of 90.85 yen on Monday.

``There's still a lot of money flowing from Europe into the U.S.,'' and the strength    of the U.S. economy ``continues to work against the euro,'' said John McCarthy,  a director of foreign exchange at ING Baring.

Traders sold euros on speculation the ECB purchases won't help reverse the beleaguered currency's trend. ECB spokesman Niels Buenemann confirmed in  early London trading the bank was buying euros, and repeated the sales would  be spread over the next few days.

The ECB surprised investors yesterday when it announced a plan to buy 2.5  billion euros in coming days, by selling excess reserves, mostly using dollars   and yen. 

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The euro set a record low against the dollar on concern that U.S. financial assets will continue to attract investors after the failure of the European Central Bank's effort to support the currency last week. Europe's common currency fell to a record 85.10 U.S. cents in Tokyo trading.

``The ECB's attempt to support the currency was not successful,'' said Valerie   Plagnol, an economist at HSBC Markets in Paris. There are plenty of reasons for  investors to ``stay in the U.S.,'' she said. ``People are looking for 82 cents as a  real possibility'' for the euro's value in coming weeks.  The euro was given a short-lived boost Thursday after the ECB said it would buy  2.5 billion euros, using interest earned on its foreign exchange reserves. The action wasn't sufficient to turn things around for the ailing currency, although further euro losses may provoke bigger purchases by the ECB, analysts said.  ``Investors are looking for more euro lows and waiting to see whether central   banks will come in,'' said Paul Bednarczyk, currency strategist at economic   research firm 4CAST Ltd. ``If the euro falls to 83 cents, we think'' the ECB will  intervene.

Meanwhile, record-long growth and higher interest rates in the U.S. continue to draw investment flows to the world's biggest economy. Purchases of U.S. stocks and bonds by investors from outside the country plus their direct investment in   businesses and real estate rose by $222.7 billion in the April-to-June quarter  following a $236.5 billion jump in the first quarter, the U.S. government said.

Investors will be watching the weekend's Group of Seven industrialized nations  meeting in Prague for more clues on possible ECB moves. Duisenberg said G-7 finance ministers and central bankers won't discuss the weak euro in Prague.

Investors will be focusing on Wednesday's Ifo survey of business confidence in  Germany and next week's Danish referendum on whether to adopt the euro. The  euro could fall if the Ifo survey shows confidence is unexpectedly weak, while a no-vote in Denmark could also hurt the currency, analysts said. Business confidence in Germany, measured by the Ifo economic research  institute, is seen rising to 99.5 in August from 99.1 in July. Meanwhile, Danes  opposing Europe's single currency rose to 48 percent from yesterday's 44 percent, widening the gap with supporters of the euro, according to a poll by  Gallup for the newspaper Berlingske Tidende.

Danish companies, already saddled with higher borrowing costs than their European rivals, are rooting for Danes this   month to scrap the krone at the second time of asking.  Some nine out of 10 chief executives will vote for the single European currency in a national referendum on Sept. 28, according to a survey of 137 companies by   the Danish Chamber of Commerce. Still, almost half of those questioned expect  the vote will go against them. The latest polls suggest they may be right. While Danes debate European Union enlargement and the possible erosion of   the country's welfare state, for Denmark A/S the vote boils down to profit. By  embracing the euro, companies can reduce their borrowing and hedging costs. Borrowing kroner for one year in the money market costs 6.2 percent, one  percentage point more than in the euro-11 area.

So far this year, the central bank has spent 46.3 billion kroner, or about 8,700 kroner for every Dane, propping up the krone against the euro. Still, last week the krone weakened to an all time low, trading at 7.4708 against the euro. The   central bank must keep the krone within 2.25 percent of a central parity of   7.46038 against the euro. Should Danes shun the euro, as they did in 1992, the central bank has warned it may raise interest rates to deter speculators from selling the krone. About 70 percent of chief executives said borrowing costs will rise and the krone may   fluctuate in the event of a rejection, according to the Chamber of Commerce.

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The euro slumped further on Tuesday  to less than 85 US cents for the first time but the European Central Bank looked unlikely to come to the rescue of the single currency. With unilateral intervention by the ECB deemed too risky,  experts agree that the only way to end the fall of the euro would be o call on the combined help of the US Federal Reserve and the Bank of Japan.  But with the US currently in the middle of presidential  elections, such concerted action looks highly improbable for some time to come.

With no fundamental economic reason to explain the renewed  sell-off in the euro, which pushed it down to a new historic low of 0.8480 dollars on Tuesday, the single currency appears to have fallen victim to market speculators, who seem to be testing how low the ECB will allow the euro to fall.  Even the warning shot that the ECB fired last week, when it  announced that it would sell a small amount of its foreign currency
reserves ostensibly for technical and tactical reasons, had only a short-lived effect.  The ECB insisted that the operation was not intervention, but  the euro gained about one and a half cents against the dollar amid market expectations that the bank was about to send in the cavalry.

With Europe's common currency  hitting another new low Tuesday against the dollar, even the International Monetary Fund admitted it had no full explanation for the euro's nonstop plunge. The 182-nation international lending agency, meeting in Prague  with its sister organization the World Bank, reserved a chapter on the weak euro in its World Economic Outlook, an annual report card on the international economy.

But the factors it mentions, such as interest rates, growth  forecasts and economic cycles, only explain part of the euro's 27 percent slide in value against the dollar since its January 1999 launch. ``You put all those things together, it explains why the euro  went from $1.16 to one dollar,'' IMF chief economist Michael Mussa said. ``But why it went from a dollar to 85 cents is much more  difficult to explain,'' Mussa said. In a pointed criticism of money traders, Mussa said they were  exaggerating the worth of the dollar. ``The market has shifted from depressive on the dollar to manic,  and that has pushed the euro somewhat too low,'' Mussa said.  ``I used to say the weak euro was more an embarrassment than a  problem, but recently it's become more of a problem,'' Mussa added.

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The International Monetary Fund raised  the risk factor Wednesday in betting on the euro's sagging fortunes, as the single currency hit new record low values against the dollar and the yen. In remarks heavy with significance for the European Central  Bank, and also for foreign exchange dealers, IMF Managing Director Horst Koehler said here that the euro "is heavily undervalued" and that "interventions cannot be a taboo".   However he added that interventions "have to work".  And he also said that "less talk and more coordination and  preparation is the issue". Koehler's remarks introduced a new element of uncertainty about  a possible ECB intervention that pulled the London forex market away, briefly, from the brink of testing to see how low the euro could go.  The euro rallied to 0.8467 dollars on Koehler's comments after  earlier sinking to a historic low of 0.8447 dollars. But in late afternoon trading it slid to a new record low of  0.8443 dollars before rallying to 0.8509 dollars. Traders have been speculating about the possibility of progress  towards a concerted intervention effort at the meeting of the Group of Seven industrial nations here Saturday. But most analysts said they did not expect either the US or  Japanese governments to lend a hand, given the approaching US presidential elections and Japan's reluctance to do anything that might weaken its own currency and threaten its fragile recovery.

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The U.S. Federal Reserve unexpectedly  joined its European and Japanese central banks to intervene in the
currency markets Friday in an effort to shore up the ailing euro. The Bank of England also took part in the intervention. An ECB spokesman refused to say what amount of euros the central  banks bought and gave no other details of the intervention. The Federal Reserve's participation in the intervention was widely viewed as crucial.  Talk about the possibility of intervention had been rife in Europe for some time, but the U.S. central bank had been seen as reluctant to get involved in an election year. Recently, however, American companies that depend on European profits have also  have seen their interests hurt by the strong dollar.

The euro, which hit a record low of 84.38 cents on Wednesday,  briefly surged above 90 cents on news of the intervention, then dropped back down to around .88. The ECB signaled a possible intervention last week, when it  rejected another interest rate hike to boost the sagging euro.

US Treasury Secretary Lawrence  Summers said Friday that concern about the damage a weak euro could do to the world economy sparked intervention by US, Japanese and European monetary authorities to support the currency.  Summers said the US intervened at the request of the European  Central Bank out of concern "about the potential implications of recent movements in the euro for the world economy."  The treasury secretary insisted there was no change in US policy  favoring a strong dollar.  "Our policy on the dollar is unchanged. As I have said many  times, a strong dollar is in the national interest of the United States," Summers said at a pre-G7 press conference.  Summers said "global fundamentals are sound". He said there are  "welcome signs of stronger economic growth in all of the other major industrialized countries."

But he added that "supportive policies continue to be essential,  especially structural reforms to raise productive potential and investment and realize the opportunities afforded by new technologies."  Summers said the emerging market economies have also  "strengthened... as recovery has taken hold and financial vulnerabilities reduced." "But here too it will be crucial to avoid complacency," and  there should be more steps taken to restructure the financial sectors and other on crucial reforms.  Summers said recent developments in oil markets "are obviously a
concern for consumers and businesses and around the world" and would be among the topic discussed at the G7 and IMF meetings in Prague

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Clinton administration officials decided to use   the U.S.'s emergency reserves to bring down the cost of oil after market speculation began to push prices higher than justified by fundamentals, U.S.  Treasury Secretary Lawrence Summers said.   Summers, who initially argued against the use of the 570- million barrel Strategic  Petroleum Reserve, later endorsed a limited, targeted release of oil. On Friday,  the administration said it would release 30 million barrels over the next 30 days, and replace the oil once prices fell in coming months.

While initially a supply shortage had kept prices up, sometime around mid-September market psychology began to play a role in pushing prices even  higher, Summers said in an interview with reporters traveling with him to this weekend's meeting of finance ministers and central bankers from the Group of  Seven leading industrial nations. ``You saw a combination of factors: anticipatory purchasing and hoarding,  concern about physical shortages, concern about oil markets beyond heating oil, and a psychological factor entering the market, all of which manifested  themselves in a substantial upward price trend that created quite quickly a quite different oil market setting than had been there before,'' Summers said.   The decision to release the oil -- which pushed prices down 3.4 percent today, to    $31.57 a barrel from $32.68 on Friday -- won general applause from the other members of the G-7, and from other countries attending the annual meetings  here of the International Monetary Fund and World Bank, which begin this week,  he said.

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The euro rose for a third day in four against the dollar on speculation central banks from the world's largest industrialized nations  will buy euros again to support the currency's value. Europe's regional currency has gained about 1 U.S. cent since central banks of  the Group of Seven most industrialized nations on Friday used their currency reserves to buy euros. Still, further gains may be capped before Denmark votes  Thursday on whether to adopt the common currency, analysts said.  The euro rose to 88.28 U.S. cents from 87.45 late Monday in New York. It rose  against the Japanese yen to 95.03 yen from 94.34.

Euro opponents held an unchanged lead of 46 percent to 42 percent in a Danish Gallup poll. Supporters stayed ahead in the Vilstrup poll, widening their lead to  46 percent to 43 percent from 45 percent to 43 percent. About one in eight  Danes eligible to vote has yet to decide, the daily polls showed. 

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The dollar rose against the euro and  sterling on Wednesday following a report that the US Bureau of Labour Statistics (BLS) will have to revise Consumer Price Index (CPI) data upwards for the 12 months to August, dealers and analysts said. The euro was trading at 0.8809 dollars, down from 0.8825 late Tuesday in New York.

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The euro slipped here on Thursday to  0.8829 dollars, from 0.8856 dollars shortly before the first set of exit polls from the Danish referendum on membership of European Economic and Monetary Union showed 52.5 percent of voters against and 47.5 percent in favour.
The euro fell below 88 cents Thursday  following the news that Danish voters had rejected a referendum to
adopt the single European currency.  The euro fell to 0.8791 dollars at 1921 GMT in New York from  0.8834 dollars late Wednesday.
 Denmark decided Thursday by a vote  of 53.1 percent to 46.9 percent against joining the euro zone, the interior ministry announced in a final official result based on a count of 99.9 percent of the vote.

The German government stressed its  "total confidence" in the euro late Thursday, after Danish voters rejected the single European currency in a national referendum.   "The government stresses its total confidence in the euro. The  strength of the european currency lies in the good economic evolution of the euro zone," Berlin said in an official statement.    "The door to the euro zone remains open to Denmark in the  future," the statement added. "The Danish krone's relation with the euro does not change," it "remains as before linked to the euro within a fluctuation band of plus or minus 2.5 percent."    The German government "respects the sovereign decision of the  Danish people".   In a separate statement, Foreign Minister Joschka Fischer said  that the decision "merits respect, even if it is regrettable".

Britain's government said it remained  committed in principle to joining the euro, despite the 'no' victory
in Thursday's Danish referendum.  "As the prime minister has said throughout, this decision is, of  course, a decision for the Danish people and does not change the British government's position," a Downing Street spokesman said.  "We are in favour, in principle, of joining a successful single  currency," the spokesman added. Anti-euro campaigners said it would now be very difficult for Britain to call its own
referendum any time soon.

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Denmark's central bank defended the  krone with a snap interest rate hike Friday as business leaders warned that the country's rejection of the euro would raise costs and lower competitiveness. Moving to deter speculative attacks on the Danish currency a day  after voters scorned the European currency, the central bank announced it was raising its benchmark repo rate from 5.1 percent to 5.6 percent. "The decision to raise the rate was made to avoid uncertainty on  the krone's exchange rate," bank spokesman Bjarne Skafte said.

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The Federal Reserve on Tuesday decided  to leave short-term US interest rates unchanged but warned that inflation could still pose a risk to the US economy.   The decision, announced at the end of a meeting here of the  Fed's policymaking Open Market Committee, means its benchmark
federal funds rate will will remain at 6.5 percent.    In a policy statement accompanying the decision, the committee  said the "risks continue to be weighted mainly toward conditions that may generate heightened inflationary pressures in the future."    The committee cited high employment levels as well as rising  energy costs as factors that could aggravate inflation.   "The increase in energy prices, though having limited effect on
core measures of prices to date, poses a risk of raising inflation expectations," the Fed said. Explaining its decision to leave rates unchanged, the committee  noted that demand had "moderated to a pace closer to the enhanced rate of growth of the economy's potential to produce." The more rapid advances in productivity also continue to help  contain costs and hold down underlying price pressures," it added.

The euro had fallen earlier for a second day against the dollar  amid expectations the Federal Reserve would not change benchmark interest rates, thus leaving intact prospects the U.S. economy will grow faster than Europe's   and Japan's.

The yen earlier rose as high as 108.47 per dollar after the Tankan report showed  business confidence in Japan improved for a seventh quarter.
The quarterly Tankan index of business confidence among large manufacturers registered plus 10 in September. The plus 3 in June was the first positive reading since September 1997. A positive number indicates the degree to which  companies that are upbeat on the economy outnumber those that are   pessimistic. Still, some traders expect the yen's rise to be limited as the Tankan showed that  industrial growth isn't strong enough to prompt the BOJ to raise interest rates in  coming months.  Smaller businesses tended to be pessimistic about economic conditions, the   Tankan showed. The sentiment index for small manufacturers registered minus  17, up from minus 21 in June. While large companies plan to spend 6 percent more on factories and equipment in this fiscal year, smaller ones see their spending falling 6.6 percent.

 The central bank raised its benchmark interest rate Aug. 11 to 0.25 percent after  guiding it to near zero percent for 17 months as an emergency measure to spur   economic growth.  With a second interest rate rise appearing less likely this year, the yen may  falter as the overnight lending rate in the U.S. remains 6.25 percentage points  higher, analysts said. Japanese bond yields fell to the lowest level in five weeks on the diminished prospects for a rate rise.

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The current level of the euro is out  of line with the economic fundamentals of the 11-country euro zone, a member of the policy-making governing council of the European Central Bank told journalists late on Wednesday.  Speaking at a dinner on Wednesday evening, ECB council member  Sirkka Haemaelaeinen said: "We at the ECB firmly believe that the current euro exchange rate does not reflect the strength of the fundamentals in the euro area."    The current level "represents a misalignment," she said.

The concerted foreign exchange intervention in support of the  euro by the ECB and the Group of Seven (G7) central banks on September 22 "proves that the economic policy-makers are worried about the potential implications" of that misalignment, Haemaelaeinen said.  She nevertheless sought to play down the weakness of the euro,  arguing that it was not exceptional from a historical point of view.  "The weakening of the euro... is rather moderate compared with  the movements of the dollar at the start of the 1980s", she said.  Regarding the latest rise in euro-zone interest rates,  Haemaelaeinen reiterated the point of view of the ECB that the additional monetary tightening would not put the brake on economic growth in the single currency area.  "I'm optimistic for the future of the euro zone. We could be  entering a period of strong and sustained growth, just as the United States were five or seven years ago."

The level of liquidity in the economy was still very high, even  if it had slowed a little.  Economic growth "has accelerated, and now seems to have  stabilised. It will nevertheless remain strong."  And from a historical point of view, the level of interest rates  up until now "has been accommodative," she argued. The outlook for growth in the euro zone was very favourable,  indeed better than it had been for 20 or 30 years.   "Unemployment is coming down more quickly than it has been for a  long time."   Regarding the effects of the high petrol prices and the low
level of the euro, Haemaelaeinen said that the ECB was "concerned about the indirect effects" on inflation.  "If we see some signs, then we're already too late," she warned.