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Euro Up Vs. Dollar but Markets Weak

January 2, 2002

LONDON (AP) _ Europe’s new common currency surged in value against the dollar Wednesday, but optimism about the euro’s arrival failed to bolster most stock markets in the 12 participating nations.

The euro, which faced its first major test Wednesday as most businesses reopened after New Year’s celebrations, rose above 90 cents against the dollar for the first time since Dec. 20.

Analysts cautioned that the euro’s rise might not be sustained unless forecasts of European growth prospects improved. And important economic indicators published Wednesday suggested continuing economic weakness, particularly in Germany and France, and dampened trading on stock markets across Europe.

In Frankfurt, market analyst Dorothea Huttanus of DZ Bank called the euro’s rise, from 88.13 cents in the morning to 90.38 cents by midafternoon, ``one of the largest jumps the euro has made on its own strength in its history.″

But Olivier Gasnier, an economist for Societe Generale in Paris, said traders would place a premium on buying euros for only the first few days of the euro’s introduction as a working currency. ``The focus will return soon to the underlying health of eurozone economies,″ he said.

Otmar Lang, senior economist at Deutsche Bank Global Markets Research in Frankfurt, said Wednesday’s rise was driven by emotion, not hard economics. But Lang, who believes the euro has long been undervalued, predicted the fledgling currency ``will probably remain up for fundamental reasons.″

Lang said many foreign-exchange investors had already concluded last month that it ``would be very, very positive if we have the coins and bills physically here. This is not a rational argument. ... It’s just a psychological thing.″

In Germany and France, weaker-than-expected figures for the purchasing managers’ index in December, a key measure of manufacturing activity, drove markets lower.

In Frankfurt the Xetra DAX index fell 0.46 percent to 5,136.31, rebounding slightly from its afternoon low. In Paris the CAC-40 index fell harder, down 0.97 percent to 4,579.78.

Britain’s Financial Times Stock Exchange in London, where the purchasing managers’ index for December was also disappointing, was rising modestly until Wall Street opened weakly in the afternoon, then fell into the red. The FTSE 100 was trading down 0.29 percent at 5,202.30.

Some smaller exchanges fared better. In Greece, the Athens Stock Exchange finished up 1.4 percent at 2,627.28, partly because of upbeat government economic projections released Wednesday that Greece would enjoy above-average growth within the eurozone for the next three years.