US rate rise strengthens dollar

THE battered dollar recovered from record lows against the euro today after the Federal Reserve lifted US interest rates and signalled it would press on with its tightening campaign.

After dropping as low as 1.3006 in New York last night - an all-time trough - the dollar was changing hands for 1.2895.

The bounceback came as European policymakers voiced concern about the euro's rapid rise amid worries that it would hamper the eurozone's fragile recovery.

The single currency has gained seven US cents in the past month, making European exports less competitive.

European Central Bank vice president Lucas Papademos became the latest to make clear his unease, saying he did not welcome excess volatility in foreign exchange rates.

Italy's Economy Minister, Domenico Siniscalco, last night revealed co-ordinated eurozone central bank intervention was being discussed.

Lifting US rates by a quarterpoint to 2% - the fourth such move this year - the Federal Open Market Committee said output appeared to be growing at a moderate pace despite the rise in energy prices, and labour market conditions had improved.

Many analysts now expect another rise next month.

In contrast, official figures showing Germany's economy expanded just 0.1% in the third quarter highlighted Europe's sluggishness.

A decline in exports overshadowed a pick-up in domestic demand.