Europe's single currency has climbed to levels not seen since October 1999 as the US dollar remains under pressure because of fears over a war on Iraq and the general economic outlook.

The euro hit a three-year high of $1.0538 before slipping back.

The dollar had strengthened earlier in the week as US stock markets made some gains fuelled by President George W. Bush's proposed $674bn economic stimulus package.

Central to his proposals was a elimination of taxes on corporate dividends for shareholders.

Factors to watch

But on Wednesday, Wall Street started its downward trend again as traders started to fret over a number of major fourth-quarter profit statements due next week.

"We are going to need much stronger figures on US corporate earnings and employment for investment flows to take on a new direction," said Hiroyuki Watanabe, manager of foreign exchange at Shinsei Bank.

The European Central Bank, which in December cut interest rates by half a percentage point, on Thursday left its key rate on hold at 2.75%.

Other key data that could move the euro/dollar rate are euro zone growth forecasts for the fourth quarter of 2002 and US weekly jobless claims and December retail sales later on Thursday.