LONDON, Sept 9: The euro lost ground against the dollar on Monday, sapped by recent signs of strength in the US economy and question marks over the political outlook in Austria and Germany.

The single European currency slipped to $0.9791 from $0.9817 late on Friday in New York.

The dollar bought 118.93 yen against 118.50 on Friday.

Economists said that the US unit was still riding high on a better-than-expected US labor market report published on Friday, which analysts said indicated the world’s largest economy was poised for modest growth and was likely to avoid a slide back into recession.

Also weighing on the euro-zone unit was the resignation Sunday of Austrian Vice Chancellor Susanne Riess-Passer and Finance Minister Karl-Heinz Grasser from the coalition government in a row over tax policy within their far-right Freedom Party.

Observers said the resignations could bring down the coalition government of conservative Chancellor Wolfgang Schuessel, even though five other Freedom Party ministers remained in their posts.

The weekend resignations of the Austrian vice chancellor and finance minister, both members of the far-right Freedom Party, following a row over how to pay for flood damages, have increased the chances of early elections, said ABN Amro economist Aziz McMahon.

This introduces new uncertainty to an already tense euro-area political climate, he wrote in a note to clients.

The general election race in Germany, the biggest economy in the 12-nation euro area, has also clouded the region’s political outlook though analysts said the latest twist appeared to have dispelled some of the uncertainty.

Less than two weeks before the vote, Chancellor Gerhard Schroeder gave his ruling Social Democrats a new boost with a strong performance in a television debate late Sunday watched by more than 15 million people.

Opinion polls conducted after the debate said Schroeder was more convincing, more likeable and more competent than his conservative rival Edmund Stoiber, whose ratings dropped over his previous performance two weeks ago.

With the television debate coming in favour of Schroeder, the gap between the two is starting to narrow, starting to erase the fear of political gridlock in Germany, said BNP Paribas economist Iain Stannard.

The euro will be under pressure in the first part of the week and midweek with the anniversary of September 11, (on Wednesday) market fears may start to turn against the dollar, he added.

The euro was changing hands at 0.9791 dollars against 0.9817 late on Friday in New York, 116.44 yen (116.38), 0.6283 pounds (0.6299) and 1.4600 Swiss francs (1.4574).

The dollar was being quoted at 118.93 yen (118.50) and 1.4915 Swiss francs (1.4842).

The pound was at 1.5582 dollars (1.5578), 185.30 yen (184.67) and 2.3239 Swiss francs (2.3126).

On the London bullion market, the price of an ounce of gold rose to $321.25 from 319.25 late on Friday. —AFP