Euro begins year on upbeat note amid recovery optimism

The euro began its second year of trading on a generally upbeat note amid growing optimism about recovery in the euro zone.

It jumped to its highest level against the dollar since mid-December to trade at $1.02, with analysts predicting it would continue to be underpinned by stronger economic growth throughout Europe.

Its prospects were also enhanced by the cautious but upbeat assessment of its perfor mance from European Central Bank president Mr Wim Duisen berg. He said the currency remained strong within the euro zone's 11-state membership. "I look back on the first year of the euro with a good feeling that everything is well under way. But at the same time I know the job isn't done yet."

The euro has lost about 13 per cent against the dollar since its introduction. Mr Duisenberg admitted its external value had been weak but insisted the currency was strong within the euro zone. He blamed European politicians for contributing to the euro's weakness during the year as they found it difficult to show a common front on economic policy. "We are still working to make the euro a currency that exists in people's heads," Mr Duisenberg said.

Meanwhile, the ECB has reassured the markets that all systems are functioning correctly throu ghout Europe's central banks. In a statement yesterday, it said all financial markets in the Union closed without incident on December 30th and the banking sector had ample liquidity available.

Over the weekend, the ECB and the national central banks successfully completed the checking of the essential infrastructure components.

With concerns of possible Y2K computer problems out of the way, focus shifted to economic fundamentals, which the single currency had mostly ignored in late 1999.

The surprise resignation of Russian president Mr Boris Yeltsin last week was also expected to keep the euro supported. "The fact that Mr Yeltsin has gone at last is also seen as a bonus . . . the volatility and uncertainty associated with Russia could calm down," according to Mr Kevin Ralph, first vice president at Sanwa Bank in Singapore.

In addition, a flurry of European purchasing managers' indices were generally supportive of the euro. The euro zone-wide manufacturing PMI rose to 57.4 in December, the highest in survey history, from 57.0 in November.

Still, by the time the market got the PMI data, the euro had run out of steam amid a dearth of dealing interest with markets in London and Dublin closed.

The dollar was broadly softer, partly due to unwinding of yearend safe-haven buying, slipping to one-week lows below 102 yen against the Japanese currency.

--(Additional reporting by Reuters)