Euro hits new dollar record on jitters over US economy

NEW YORK (AFP) - The euro grabbed another record high against the dollar yesterday amid credit woes in the US housing market and the prospect the Federal Reserve will hold interest rates steady for months to come.

The single European currency jumped at one point to 1.3852 dollars, the highest reading against the US unit since the euro's creation in 1999. On Monday it set a record high of 1.3845 dollars.

The euro was at its high point of 1.3852 dollars around 2100 GMT, compared with 1.3811 late Monday in New York.

The dollar fell to 120.23 yen after 120.99 Monday.

"The greenback's failure to hold on to much of its early gains yesterday was a negative sign, but just as important, the currency recently has even been falling against the yen," said Patrick Fearon, an analyst at AG Edwards.

Most of the market nervousness is directed at the subprime lending sector in the United States, where loans are made to people with risky credit.

Subprime lenders have suffered widespread mortgage defaults in the slumping housing market.

The latest bad news came on Tuesday when Countrywide Financial Corporation, a leading US mortgage lender, slashed its full-year earnings outlook and reported a 33 percent fall in second-quarter profit, heightening fears of a spillover effect in the economy.

US Federal Reserve Chairman Ben Bernanke has said the squeeze in subprime housing so far has had only a limited effect on the broader economy.

Treasury Secretary Henry Paulson expressed confidence Monday in the dollar's prospects despite the new highs notched up by the euro and predicted the subprime troubles would not infect the broader economy.

Consumer spending accounts for about two-thirds of US economic activity. Some analysts fear that just as Americans spent more during the period of rising home values according to the so-called "wealth effect," they will retrench during a period of falling property prices.

The US currency has fallen to a 30-year low against the Canadian dollar, a 22-year low against the New Zealand dollar and a fresh 26-year low against the British pound.

Analysts are now doubtful the dollar will firm in the near term.

"Given the dollar's downside momentum, all of the week's remaining US data releases must surely come through with flying colours in order to instill the market with any sense of caution in piling further pressure upon the greenback," said Neil Mellor, currency strategist at Bank of New York Mellon.

Traders were awaiting the release Wednesday of the June US existing home sales data and the Fed's Beige Book economic report.

In late New York trade, the dollar stood at 1.2026 Swiss francs from 1.2056 Monday.

The pound was at 2.0624, up from 2.0591.