Markets surge as euro slumps

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STOCK MARKETS in London and New York hit new highs yesterday while the euro hit another new low against the dollar, highlighting the financial markets' diverging expectations for their economies.

The euro fell after figures showed German unemployment rose in June. The markets ignored efforts by Christian Noyer, vice president of the European Central Bank, to talk the European currency up.

The FTSE 100 closed at a record high, driven by recent rises on Wall Street. It ended the day 28.6 points up at 6,620.6, beating a previous high of 6,598.8 in April. The FTSE 250 and FTSE All Share indices also hit closing highs.

In New York, the Dow Jones soared into record territory, surging to 11,228 by mid-morning, up on the previous high of 11,139 set on Friday, but closing 4 points down at 11,135.

The euro was hit by the figures showing a 15,000 rise in the number unemployed in Germany last month. It fell briefly to $1.0184, its lowest so far against the dollar, before climbing back above $1.02. It was broadly steady against the pound, ending at 65.37p yesterday. Mr Noyer said: "The euro has clear potential for stronger external value."

It was the third consecutive monthly increase in the number of jobless in Germany. "Recent increases in unemployment may continue to weigh heavily on the euro," said Frank Schroder, an economist at HSBC Trinkhaus in Frankfurt.

The markets are also concerned that governments will let their control over budget deficits slip, in the wake of the agreement to allow Italy to breach its target this year because of slow growth. That news sent the euro 1 per cent lower on the day it emerged. The euro has lost 12.6 per cent of its value against the dollar since its launch on 1 January.

The pound tumbled in New York trading yesterday to $1.5628.

Market report, page 21

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