Corrects gender of Lloyds TSB executive in tenth paragraph)
By Veronica Brown
LONDON, March 28 (Reuters) - The euro moved towards record
highs versus the dollar on Friday, boosted by ECB policymakers'
comments on inflation, while economic worries weighed on stock
markets as they approached the end of a volatile quarter.
The single European currency rose as high as $1.5839, within
shouting distance of last week's record $1.5904. Gains were
later trimmed however after data showing U.S. personal income
rose more than expected in February. []
Overall sentiment towards the U.S. economy and the dollar
remained weak however as the ailing U.S. economy teetered on the
brink of recession as contagion spread from problems in the
domestic housing market and global credit crunch.
"Comments from the Fed overnight continue to paint a grim
picture of the situation in the U.S. and there's an increasing
risk of the U.S. moving into a recession," said Ian Stannard,
senior foreign exchange strategist at BNP Paribas.
The euro's fortunes were boosted after European Central Bank
Governing Council member Axel Weber said price pressures were
alarmingly high. ECB executive board member Jurgen Stark said
there was no reason to believe inflation has been brought under
control.
The ECB's focus on fighting inflation has made it more
tolerant to a strengthening currency and is in sharp contrast to
the stance of the U.S. Federal Reserve, which has slashed rates
by 300 basis points in the last seven months to boost growth.
STOCKS PRESSURED
European shares slipped in choppy trade with bank shares
dropping on fears of further fallout from the ongoing credit
squeeze.
The FTSEurofirst 300 <> of top European shares was
down 0.6 percent at 1263.78 points, while U.S. futures pared
gains but were still pointing to a positive start after the
benign U.S. inflation data.
With one more session to go after Friday, the index was on
track for its worst quarter since the third quarter of 2002.
British bank Lloyds TSB <LLOY.L> was down 1.25 percent after
the Wall Street Journal reported that the woman who runs its UK
retail banking business would move to Citigroup <C.N>. Among
other banking stocks, UBS <UBSN.VX> was also weaker.
"The market's nervous at the moment and I'd be happy to get
away with a relatively dull day at the end of a short week,"
said Justin Urquhart Stewart at 7 Investment Management.
Investors have been weighed down by worries the credit
crisis may yet claim more victims on Wall Street following
market rumours that Lehman Brothers <LEH.N> could be the next
bank to fall, rumours Lehman said were "totally unfounded".
[]
Citigroup said in a note to clients that Lehman shares were
ripe for the picking, with current valuations seen as extremely
attractive.
"It's tough to have a liquidity-driven meltdown when you're
being backed by government entities that have the ability to
print money. Lehman has ample liquidity to run its business,"
Citi said.
But the global credit crunch that started in August last
year continued to weigh on money markets, with short-term
deposit rates used for interbank lending reaching high levels.
Euro deposit rates for tomorrow-next day delivery had been
indicated as high as 4.42 percent <EURTND=>, the highest since
late 2001 and some 42 basis points over the European Central
Bank base rate.
(Reporting by Veronica Brown)
