Euro rises as US gloom settles in

The euro made the most of the latest upset for the US economy yesterday, rising towards $0.95, as fresh signs of a US slowdown undercut the dollar.

Statistics from the US National Association of Purchasing Management showed a greater-than-expected fall, prompting fears of a hard landing for the US economy.

The NAPM overall index fell to 43.7 in December from 47.7 in November, as US economic activity declined for the fifth consecutive month.

Analysts said the data signalled a possible US recession, which would cut the value of the dollar, while the euro zone showed robust signs of expansion, supporting the single currency.

The euro climbed to $0.9458 in late trading, its highest since mid-July, from $0.9422 dollars in New York in late Friday dealing.

The single currency also extended gains against the Japanese unit, rising to 108.56 yen from 107.74 yen on Friday. The yen remained under pressure against the US currency, with one dollar buying 114.76 yen from 114.33 yen in New York.

In contrast to the weak US data, euro-zone manufacturing data from the Purchasing Managers Index came in above the key 50-point mark, signalling that the manufacturing sector was expanding, although at a slower pace than previously.

French Finance Minister Mr Laurent Fabius said: "Europe has a strong economy and its currency will be solid," recalling that the US economy was slowing and there was confirmation of European and French growth.

Analysts said it was clear that US growth would lag behind the euro zone and that corporate and portfolio investment flows were increasingly moving to the euro's benefit.

"It does look like the US manufacturing sector is heading for a recession and Friday's non-farm payrolls and unemployment numbers will be telling," economist Mr Michael Lewis at Deutsche Bank said.

Mr Lewis also noted aggressive pro-euro positions taken by speculative trading accounts. Other analysts said that Friday's US labour market report could further harm the dollar.

The euro was also firm against sterling as the pound found itself caught in the cross winds of the strong euro-weak dollar theme. It closed at 63.19p against 62.67p on Friday.