Euro rises to record level against U.S. dollar

FRANKFURT, Germany -- The euro hit an all-time high against the U.S. dollar on Tuesday, restoring prestige to Europe's 4 1/2 year experiment with a shared currency while making consumer goods and European vacations more expensive for Americans.

The move also raised worries that the rally could stall Europe's economic recovery.

The euro soared to $1.1914 in Asian trading, before slipping back to $1.1884 in late European trading, up from $1.1857 late Monday.

The dollar was steady against the Japanese yen but fell against other major currencies in European trading, while gold prices rose in London.

Driven down by U.S. economic woes including the trade deficit, the weak dollar could help recovery in the United States by boosting exports and fattening corporate earnings. Ordinary Americans, however, will run into higher prices for imported cars, televisions and other goods.

The euro had its previous peak of $1.1884 on Jan. 4, 1999, three days after the currency was launched in an effort to better integrate Europe's economies.

A 16-month rally has erased a long slump against the dollar that began as soon as the euro was introduced and saw its value tumble as low as 82 U.S. cents. European economists and politicians say the rise corrects a long undervaluation, though some are getting edgy about its effect on Europe's export-dependent economy.

"This is a burden," Michael Rogowski, the head of the Federation of German Industry, said Tuesday. "Every cent above one-to-one gives me bigger stomach pains."

U.S. and European officials have accelerated the 12-nation currency's rising value by saying they don't mind. U.S. Treasury John Snow's remark that the rise was "fairly modest" convinced many that Washington favored a weaker dollar.

Many economists see the euro rising until officials change their tune or the economic circumstance change.

"We are in a very pessimistic dollar season," said Commerzbank economist Michael Schubert. "As long as there are no reason to correct that view, it will go on."

The dollar was unchanged at 116.84 Japanese yen, the same as late Monday, but it fell to 1.2820 Swiss francs from 1.2887 and to 1.3736 Canadian dollars, down from 1.3755. The British pound was quoted at $1.6423, up from $1.6384.

Worries are growing that the stronger euro will snuff out or slow a recovery in European economy, which had zero growth in the first quarter. With a stronger euro, exporters -- the expected leaders of any recovery -- see their goods become more expensive against foreign competition.

Officials at the European Central Bank have also welcomed the euro's rise, saying it's about where it should have been in the first place.

The euro replaced 12 national currencies in an attempt to knit Europe closer together and promote trade and growth. Its supporters hope it will also one day take a place alongside the dollar as a preferred currency for international trade, investments and central bank reserves -- hopes that were dented by its rapid plunge.

Many economists say the rise in the past few days has run on momentum, fueled by traders' expectations that the euro will keep going up and they will continue to profit by buying euros.

But there are long-term economic reasons pushing the dollar down.

One is the huge U.S. trade deficit, which can undermine a country's currency. Another is investor disenchantment with U.S. investments, leading them to pull out of U.S. assets -- selling dollars as they do so, and driving its exchange rate down.

Higher interest rates in Europe also play a role, pulling money into the euro zone.

Interest rate cuts by the European Central Bank could dampen the euro's rise as long as the U.S. Federal Reserve doesn't cut further. The bank, which controls monetary policy for the countries using the euro, is widely expected to cut rates at its June 5 governing council meeting.

Gold traded in London at $368.30 bid per troy ounce, up from $368.20 on Friday. London's gold market was closed Monday. In Zurich, gold was unchanged at $370.05. Gold rose $1.85 in Hong Kong to $372.35.

Silver closed in London at $4.62 bid per troy ounce, down from $4.63.