Dollar gains as central European currencies plunge

LONDON (AFP) - The dollar gained against the euro on Monday as currencies in central Europe were hit by a sharp fall that analysts said was due to the high levels of debt in those countries.

The euro was trading at 1.2767 dollars late on Monday in London compared to 1.2856 dollars late on Friday.

The European single currency also lost ground to the Japanese yen, falling to 117.20 yen compared to 118.30 yen on Friday.

The dollar was slightly down on the yen, falling to 91.77 yen against 92.01

"The US dollar and the yen have started the week on a buoyant note as the G7 did not really bring anything new to the table and risk aversion returns as a dominant market theme," said Audrey Childe-Freeman from US bank Brown Brothers Harriman.

Finance chiefs from the Group of Seven leading industrialised nations met in Rome over the weekend. They called for urgent measures to tackle the global economic crisis including root-and-branch reforms of financial markets.

"The G7 statement did little to appease investors? fears," said Valentin Marinow from German bank Commerzbank.

French bank BNP Paribas said in a statement: "Following the G7 meeting, the USD has rebounded across the board.

"Finance Ministers admitting that a global economic recovery is some while away and that a recovery would remain weak has kept risk aversion the main theme."

Risk aversion led to a sharp devaluation of central European currencies against the euro.

The Hungarian forint hit a record low against the euro and the Czech koruna hit its lowest level in three years against the European single currency.

"The koruna is the weakest since January 2006," Patria Finance analyst Tomas Vlk told AFP, adding that "investors are avoiding the highly risky region."

The Polish zloty dropped to a five-year low point against the euro and has fallen by forty percent since July, experts said despite forecasts suggesting Poland would steer clear of recession.

"Such rapid changes in the exchange rate would not be possible as a result of just trade transactions. Speculation is apparent in this case and is fuelling the strength and pace of the fall," said Mateusz Szczurek, chief economist of ING Bank Slaski.

"Our region is not popular on the markets at the moment even though Poland looks all right by comparison," he added.

Investors were also paying close attention to events in the United States, the engine of the global economy.

President Barack Obama was due to sign off Tuesday on a 787-billion-dollar economic stimulus plan aimed at kick-starting the world's largest economy. US financial markets were closed Monday for a national holiday.

In London trading on Monday, the euro changed hands at 1.2767 dollars against 1.2856 dollars late on Friday, at 117.20 yen (118.30), 0.8950 pounds (0.8956) and 1.4857 Swiss francs (1.4945).

The dollar stood at 91.77 yen (92.01) and 1.1635 Swiss francs (1.1622).

The pound was at 1.4267 dollars (1.4349).

On the London Bullion Market, the price of gold rose to 942.50 dollars an ounce from 935.50 dollars late on Friday.