Euro tops 1.50 dollars as greenback sees more pressure

NEW YORK (AFP) - The euro burst past the key 1.50 dollars level on Wednesday to fresh 14-month highs as increasingly confident investors sold the US unit in favor of higher yielding assets.

At 2100 GMT, the euro was at 1.5016 dollars, a level last seen on August 11, 2008, up from 1.4937 dollars in New York late on Tuesday.

The European unit traded as high as 1.5046 dollars before settling back. The euro hit a record high of 1.6038 dollars on July 15, 2008 and a record low of 0.8352 dollars on July 6, 2001.

The dollar was broadly lower, but managed to rise to 90.96 yen from 90.72 yen, gaining on the Japanese unit that is also seen as a low-yield, safe-haven currency.

Michael Woolfolk at Bank of New York Mellon said the dollar attempted a late rebound when the market was "spooked" by reports that the US government would soon implement curbs on compensation at bailed-out banks

"The modest rebound in the greenback and paring of risk appetite pushed commodity prices lower," he said.

The dollar has been suffering from the near-zero interest rate policy of the US Federal Reserve. Analysts say this fuels the so-called "carry trade" in which investors borrow in dollars to invest in higher-yielding assets.

Analysts said it is cheap to borrow dollars which are then switched into other currencies such as the euro, or into stocks and commodities which have soared on hopes that the recovery from the global economic slump will hold.

The euro's rise above 1.50 dollars is likely to provoke increasing efforts by Europe to stem the decline of the greenback and weaken the euro to help support a eurozone recovery.

"Up to now the eurozone recovery continued to expand despite higher exchange rates. However, the latest trade data out of Germany saw a sharp decline in its surplus as higher euro began to weigh on exports," said Boris Schlossberg at Global Forex Trading.

He said European Central Bank officials "are unlikely to accept this latest rally unchallenged as the increase in the currency could result in the one things European policy makers fear the most -- additional job losses."

On Monday, Eurogroup chief Jean-Claude Juncker, European Central Bank boss Jean-Claude Trichet and EU economic and monetary affairs commissioner Joaquin Almunia warned of the possible dangers.

Trichet said it was the trio's "common position" that the "excessive volatility" of currency movements had clearly "negative implications for the economic and financial stability" of Europe's economy as a whole.

Analysts said the official fears were well founded.

"The strength of the euro against the dollar heightens concerns about the strength and sustainability of the eurozone recovery," said IHS Global Insight economist Howard Archer.

"The most obvious losers ... will be major eurozone exporters to the United States, and to countries whose currencies are linked to the dollar, as they will obviously find their competitiveness impaired.

"This is at a time when global economic activity and trade is still fragile, with relapses a serious risk," he said.

In late New York trade, the dollar dropped to 1.0058 Swiss francs from 1.0118 Tuesday.

The British pound jumped to 1.6605 dollars after 1.6371.