JULY 15, 2010, 5:55 P.M. ET.

A Two-Month High as Euro Nears $1.30

By BRADLEY DAVIS

The euro soared to a two-month high against the dollar Thursday as easing concerns over euro-zone sovereign debt combined with growing worries that the U.S. economic recovery may be stalling.

The common currency rose above $1.29 and targeted the psychologically important $1.30 level. The euro has been on a steady march since hitting a four-year low of $1.1876 in early June.

Worries about the euro zone's fiscal crisis have been somewhat allayed by successful debt raisings by Greece, Spain and Portugal. Also, investors are anticipating stress tests of European banks will paint a picture of a healthy regional financial industry. "People are looking at all the measures the Europeans are putting in place," said Chris Turner, head of foreign-exchange strategy at ING Financial Markets in London. Those measures have calmed investors, he said.

The dollar also fell sharply against other major currencies after data showed a slowing U.S. economy, underlining this week's report by the Federal Reserve that revised growth figures downward. "Thursday brought a terrible cross-section of data," said David Semmens, U.S. economist at Standard Chartered Bank in New York. "This clearly points to a slowing in activity and a very weak start" in the U.S. for the second half of the year, Mr. Semmens said.

Late Thursday in New York, the euro was at $1.2933, above $1.2738 late Wednesday. The dollar was at 87.45 yen, a new 2010 closing low, down from 88.28 yen Wednesday. The euro was at 113.10 yen, up from 112.46 yen. The pound was at $1.5450, up from $1.5257. The dollar was at 1.0419 Swiss francs, below 1.0534 francs.

A lower-than-expected jobless claims number contrasted with the Empire State Manufacturing and Federal Reserve Bank of Philadelphia survey data, which showed that sector continued to expand but at a much slower pace. A falling producer-price index should further cement expectations the Federal Reserve will wait until next year before it starts raising ultralow key interest rates, keeping pressure on the dollar. Meanwhile, U.S. industries boosted production in June, but only slightly—a sign the sector that has led the economic recovery is cooling.

The minutes from June 22-23 Federal Open Market Committee meeting, released Wednesday, noted a "relatively modest" worsening in the U.S. economic outlook, and said further monetary stimulus could be needed if the economy showed more signs of slowing.

"The market got the picture that the Fed was less optimistic than it had been," Mr. Turner said. "That's really kind of undermined the dollar."

But not all higher-yielding currencies benefited from the improved investor sentiment over the euro zone, as worse-than-expected Chinese growth figures weighed on some currencies closely tied to the pace of global growth, such as the Australian dollar, which fell nearly 0.2% against the dollar.

Some analysts are skeptical of the euro's rally, noting as the euro gains, investors with anti-euro bets have been forced to unwind their positions, squeezing the common currency higher, especially in thin summer markets.

"The euro appears to be benefiting from a retrenchment in expectations for the U.S.," said Steven Englander, head of G10 strategy at Citigroup in New York. "Nevertheless, the policy response to mitigate the fallout from the sovereign-debt crisis still presents a short-term hurdle for the euro," he said.

Write to Bradley Davis at bradley.davis@dowjones.com

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