Euro dips on hopes of second-half US recovery

The Euro tumbled by as much as 1.5 per cent against the dollar yesterday as the financial markets bet on a solid US recovery in the second half of this year and into 2004.

Stock markets across the world leapt higher amid mounting hopes of a bumper crop of corporate earnings statements on Wall Street. Enthusiasm for the euro was further undermined as a senior European Union official said it might be forced to cut its economic forecasts again.

Pedro Solbes, the EU's Monetary Commissioner said the group might cut its economic-growth forecast this year to 0.7 per cent from 1 per cent. This compared with the bullish forecasts by John Snow, the US Treasury Secretary, of growth of "well over 3 per cent" in the second half of the year.

The euro fell 1.5 per cent yesterday to its lowest level since early May to hit $1.1316, a drop of nearly one and three-quarter cents from $1.1490 late Friday.

"We are in a temporary period of buoyancy in US stocks and more and more people are buying into the equities story," said Stephen Jen, the chief currency economist at Morgan Stanley. "At the same time the eurozone economy has deteriorated so much in the past two months."

On Wall Street the Dow Jones ended up 1.6 per cent. Analysts said the rise was driven by confidence that companies will report better-than-expected second-quarter earnings. The bullish sentiment was echoed by an even stronger 3.5 per cent rise in the Nasdaq index of hi-tech companies that will benefit most from the long-awaited rebound.

In London the FTSE 100 blue-chip index ended up 53.3 points at 4,074.8 ­ its best finish in two weeks. Analysts said the market had the potential to keep building towards June's nine-month closing high of 4,207.

The single currency was also caught in the crossfire of an ongoing shift out of bonds and into shares as investors abandon their bearish stance.

The rise was a further sign that investors are dumping bonds, which made huge gains as institutions sought a safe haven for their money amid fears of a global recession and further terrorist outrages.

The "bubble" in the bond market mainly benefited the euro, where higher interest rates and the weak eurozone economy supported the bonds market.