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To: baggo who wrote (117971)	12/4/2000 12:39:24 AM
From: 2MAR$	Respond to of 120523

Euro Moves Toward Recovery As U.S. Growth Decelerates By Christopher Rhoads and Marcus Walker Staff Reporters The euro may have landed at last. After a virtually relentless fall against the U.S. dollar since its inception in January 1999, primarily as a result of faster economic growth in the U.S. than in Europe, the common currency may have finally settled into a trend of gradual recovery. The main reason is that even though European growth is moderating in the second half of this year, U.S. growth appears to be slowing more sharply than expected. "We're in the vicinity of a turning point" for the euro's movement against dollar, said Paul Meggyesi, senior currency analyst with Deutsche Bank in London. The euro surged against both the U.S. dollar and the yen last week, rising by nearly four U.S. cents to 87.90 U.S. cents Friday from a week earlier and by more than four yen to 97.84 yen in the same period. Both levels constitute highs in recent months. The Japanese currency held roughly steady against the U.S. dollar. Mr. Meggyesi and others ascribe the changed outlook for the common currency not to any new perceptions about European growth, but to worsening prospects for the U.S., an outlook which should begin to steer capital flows away from the U.S. and into Europe. "What has sustained the overvaluation of the dollar is the outperformance of the U.S. economy and inflows of foreign capital," Mr. Meggyesi said. "Clearly the macroeconomic environment has shifted." Similarly, the euro's recent strength against the yen is mainly attributed to increasing domestic uncertainty in Japan, both political and economic. Last week, Hiromu Nonaka, a key figure in Japan's ruling Liberal Democratic Party, said he intends to resign, giving rise to speculation about another leadership shuffle. Further, investors' fears are growing that Japan's nascent recovery could be wiped out by more stock-market declines and a reduction in demand from the U.S. What has driven the dollar for the past two years against the euro has been the U.S. economy's continued ability to surprise the market with its strength, particularly in light of the global downturn in 1998 from the emerging-market crises. What has jolted investors' outlook now is a new kind of surprise, that the U.S. economy may be weaker than expected. The downward revision last week of third-quarter growth to 2.4% from 2.7%, although not as bad as some had predicted, nevertheless shook confidence within the marketplace. It put the U.S. economy at its slowest pace in four years, and less than half the 5.3% pace of the second quarter. "The U.S. is shocking us with cumulative stings of ever-worse data," said Peter von Maydell, senior currency strategist with Credit Suisse First Boston in London. From European data, the market isn't learning anything new, he said. Added Ed Teather, economist with UBS Warburg in London, "For the first time, the U.S. data has proved to be weaker than expected." On Friday, more bad news arrived. The National Association of Purchasing Management's measure of key manufacturing activity in the U.S. fell in November to 47.7, from 48.3 in October, the fourth-consecutive month of decline and well below expectations within the marketplace. The equivalent measure for Euroland, the purchasing managers' index, also fell significantly in November, to 54.6 from 55.7 in October, according to data released Friday. The measure fell in all of Europe's biggest economies, driven mainly by a fall in output and a decline in orders. German and French employment expectations were also down, suggesting more slowing to come. But since any reading above 50 indicates an expanding economy, the numbers suggest that while Euroland is still growing - although at a slower pace than before - the U.S. economy is actually contracting. Another factor weighing on the dollar is the uncertainty surrounding the U.S. presidential elections. European politicians and financial officials have often been faulted for their contradictory views on the euro, compared with the clear strong-dollar policy in the U.S. But, now "you don't even know who the policy makers are going to be next year" in Washington, said Michael Dicks, economist in the London office of Lehman Brothers. --- Bill Spindle in Tokyo contributed to this article. (END) DOW JONES NEWS 12-04-00 12:30 AM