Flood of optimistic indicators feeds US dollar's gains

The US dollar continued to gain against the euro Friday, as traders ramped up demand for the US currency amid increasing worries about Europe's economies, three of which are in recession.

Traders said the dollar's rise against the euro -- it has has gained over 2.5 percent in the last week -- slowed Friday, but that upbeat perceptions on the US economy continued to feed dollar gains.

By 2100 GMT, the euro was changing hands at US$1.0881, compared with US$1.0880 three hours earlier, and against US$1.0919 late Thursday.

The dollar fell against the Japanese currency in afternoon trading, and was quoted at ?117.55 in late activity, compared with ?117.74 Thursday.

"Growth in the US is looking very strong whereas Europe is basically in recession," said Dennis Heidt, a currency analyst at MMS International, in explanation of the dollar's upward turn.

However, traders said the moderation in the dollar's rise against the euro Friday, the dollar has risen some 10 percent against the euro since late May, has likely marked a peak in its ascendancy.

They said it is now likely to trade around current levels in the near future as US and European economic changes are larely priced-in to its value.

Investors deserted the dollar in late May and early June over concerns about the bulging US current account deficit, war jitters and a perception that US President George W. Bush's administration had abandoned a long-held "strong dollar" policy.

Demand for dollars also was sapped by near rock-bottom interest rates, which lowers the return on US investments.

But the flood of upbeat data has turned the tide.

"We had this bubble of dollar weakness that has just popped, and as is typical of any financial market bubble it pops much more quickly than it builds," Anderson said.

Some commentators are concerned the dollar's recent gains, ahead of an as yet unconfirmed US economic rebound, could imperil further US economic growth as it becomes more expensive for foreign companies to purchase US goods.

At the same time, euros have lost their allure as concerns mount about the state of Europe's major economies.

Germany, Europe's largest economy, Italy and the Netherlands have all slipped into recession, while France reported this week a 0.3-percent contraction in second quarter GDP.

The pound sterling was changing hands at US$1.5741 in late afternoon trading, compared with US$1.5785 late Thursday.

The US currency was changing hands at 1.4163 Swiss francs, compared with Sf1.4126 Thursday.

Gold for current delivery closed at US$363.10 per troy ounce Friday on the New York Commodity Exchange, up from US$360.60 late Thursday.