The euro has gained sharply against the US dollar, reaching a new four-year high of $1.1067, as poor economic data and war worries continued to weigh on the dollar.

The dollar made back some of the ground later in the day, but stayed below par thanks to a speech of President George W Bush, which appeared to set the United States firmly on course for war, and more inconclusive reports from chief weapons inspector Hans Blix.

The reaction of the dollar does not seem to be extreme given the context of a march toward war and an economy that for the moment is seriously faltering Pierre Ellis, Decision Economics

Payroll data, meanwhile, indicated that US firms keep cutting jobs, leading to analysts' warnings that this could soon damage consumer spending.

Thursday's modest interest rate cut by the European Central Bank - somewhat less than some traders had predicted - also served to buoy the euro.

But analysts predict that the European currency is unlikely to remain above $1.10 for long, given Europe's slowing economy and the US insistence on a strong dollar.

New US Treasury Secretary John Snow has assured the markets that he believes in a strong dollar, despite the preference of some exporters for a weaker currency.

Ups and downs

The immediate spur for euro strength was provided by the ECB's rate decision.

BNP Paribas analyst Ian Stannard said: "The move has been met quite enthusiastically by the [currency] market.

"Obviously the overall picture is euro bullish anyway but the rate cut is going to help given that the euroland outlook had been deteriorating quite rapidly over recent weeks."

But other analysts were dwelling on an earlier batch of data which, they said, underlined the true extent of the eurozone's economic problems.

"I think it's a mistake," said Merrill Lynch's chief European economist, Ian Stewart.

"There were hopes that monetary policy would shift and it's just not moving quickly enough, so this increases the downside risks for growth."

Data released earlier by the European Union showed the euro zone posted anaemic economic growth of 0.8% in 2002 compared with a 1.4% rise the year before.