Wed, Nov 10, 1999
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Euro Falls to New Lows, European Stocks Higher
By Ron Askew  Reuters
LONDON — The battered euro set a new record low on Friday, rallied briefly on signs of a softening in Belgrade over Kosovo, then flopped to another new low.

European bourses enjoyed better fortunes, chasing Wall Street ever higher, traders said.

The euro hit its first new record low of $1.0557 on signs of strong U.S. growth.

It then scrambled back above $1.06 after the Yugoslav Foreign Ministry said Yugoslavia could consider letting an international armed force into Kosovo if the United Nations Security Council moves in that direction.

The comment came as Russian Balkans envoy Viktor Chernomyrdin was in Belgrade looking for a diplomatic solution to end almost six weeks of NATO bombing.

But after a Yugoslav foreign ministry spokeman insisted later that such a mission must be unarmed, the euro came under renewed pressure and sank back to touch new lows below $1.0550.

"The dollar rose after growth data showed the U.S. economy continued to defy expectations of a slowdown," said Claudio Piron, treasury economist at Standard Chartered.

Kosovo apart, the real problem for the euro is the bleak outlook for the euro zone economy and the credibility of the European Central Bank, analysts said.

Europe's big three bourses — London, Paris and Frakfurt — ended around 0.8 percent higher after starting firmer on the back of Wall Street's overnight record close.

They got another lift from the world's most closely watched share benchmark when U.S. shares rose as cyclical and financial stocks joined the bull run toward 11,000, traders said.

"I think before the day is over we could go to 11,000," said U.S.-based Larry Wachtel, analyst at Prudential Securities.

Wall Street shrugged off fears that unexpectedly strong U.S. economic growth data might lead to a rise in interest rates.

It was up around 70 points shortly after London closed, about 50 points shy of the 11,000 landmark.

The U.S. Commerce Department said gross domestic product expanded at an annualized rate of 4.5 percent in the first three months of 1999, outpacing Wall Street's 3.3 percent forecast.

European government bonds were off their highs after the buoyant U.S. figures, but remained positive.

London, Europe's biggest stock market, ended 0.84 percent higher, with oil and bank stocks boosting the index.

"The market feels okay. We were down yesterday on the drug stocks and it's as simple as that. There's no volume around but we're seeing a reversal of sentiment," said one dealer earlier.

The UK blue-chip index finished at 6,552.2 and was within some 47 points of its closing high of 6,598.8 set on Wednesday.

Despite a 101 point slump on Thursday, the leading index ended the week with a net gain of 124 points.

In Paris, the CAC-40 index rose 0.77 percent to a new closing record at 4,405.35, boosted by Wall Street's gains and the stronger dollar which benefited shares in oil firms and cyclicals, traders said.

The CAC-40's previous closing record was 4,390.92 earlier this week.

In Frankfurt, Germany's Xetra DAX rose 0.7 percent with chemicals stocks the focus of attention amid steady sector expectations, but traders said the share index could shy away from resistance next week.

"Volume hasn't been brilliant today," one trader said. "It looks like there could be some resistance. The market is probably a little bit overbought at the moment."

He said a bare-looking earnings calender along with a public holiday in Britain on Monday pointed to a quiet week ahead.

The DAX could bounce off resistance at this year's high of around 5,440 points and head down to support at 5,200, traders said, although some said 5,500 points was still reachable in the near term.

Weakness in the euro was also discouraging investment in the DAX as it was seen as reflecting sluggishness in the euro-zone, within which Germany is the largest economy.

Reflecting concerns about the overall economy, chemicals group Bayer reported a fall in first quarter pre-tax profit to 659 million euros ($698.3 million) from 739 million. Sales fell to 6.994 billion euros from 7.332 billion.

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