US Treasury Secretary Paul O'Neill has rejected suggestions from Europe that America's push to protect the domestic steel industry is simply a matter of treating the symptoms of an overvalued dollar.

Speaking during a Middle Eastern tour, Mr O'Neill said the strength of the dollar and the plight of the steel business were separate issues.

"They just live in different worlds," said Mr O'Neill, a former head of US aluminium giant Alcoa.

"The fact that the steel industry now has had for a long time a huge overcapacity is the overwhelming issue about the steel case."

Mr O'Neill has been dismissive of complaints from US manufacturers about the strong dollar ever since taking office, saying that good companies did not "live or die" by exchange rates.

Manufacturers' groups say the dollar is 30% overvalued.

Too much, too cheap

While observers generally agree that the world steel industry produces too much to meet demand, the US protection measures have attracted criticism in countries from Brazil to Australia.

Many have, with the European Commission, complained to the World Trade Organisation over the 8-30% tariffs slapped by the US on steel imports for the next three years.

The suggestion that the high value of the dollar was responsible for the US steel industry's plight came from European Central Bank president Wim Duisenberg.

Mr Duisenberg dismissed as "deplorable" the US position that foreign governments' subsidies for their own steel industries meant America needed to give its steel companies a breathing space to restructure.

Many analysts agreed.

"What Duisenberg said made perfect sense," said Joachim Fels at Morgan Stanley in London.

"It is quite obvious that the steel sanctions have got something to do with the strength of the dollar.

"(It) is more over-valued than it has ever been in the past, more even than in the 1980s, and this is one reason why US manufacturers have these problems."

Oil price

Mr O'Neill also took the opportunity during his Middle Eastern visit to reiterate the US view that oil prices should not be allowed to rise too far.

The recovery in the US from the doldrums seen after the 11 September attacks has been assisted by low energy prices, and recent rises have been a cause for concern.

Although Opec, the 14-member oil producers' cartel, has expressed desires for prices to stay in a $22-28 a barrel range, Mr O'Neill said that the ideal was rather lower.

"A reasonable balance of $18 to $25 probably meets the test for sustainability," he said.

"That way the US and the broader world will have a chance to return to a higher rate of real growth."