LONDON, Dec 20: The dollar remained weak against other major currencies on Friday as prospects grew of a war against Iraq, though expectations that Washington would not act immediately helped calm sentiment, dealers said.

The single European currency was being traded at 1.0266 dollars, close to recent three-year highs, against 1.0271 late on Thursday in New York.

The dollar rose to 120.83 yen from 120.56.

Expectations of a US-led war in Iraq, which were fuelled by a US declaration Thursday that Baghdad is in “material breach” of its UN weapons obligation, have sent oil prices up to three-month highs and gold prices to a near-six-year zenith.

They have also cast a shadow over the dollar.

A big US current account deficit leaves the US unit exposed if foreign investors start repatriating assets as often happens in uncertain times, analysts say, while any conflict is also likely to hurt US consumer confidence and the public coffers.

The United States has a huge current account deficit. People are looking at 2003 and the main issue for the first quarter is the war, it keeps the dollar on the defensive, said ABN Amro strategist Rob Hayward.

The risks are increasing there will be some sort of conflict, probably ... at the end of January at the earliest, he said.

But experts noted that the dollar had given a muted response to the US comments and a declaration by chief UN weapons inspector Hans Blix that “relatively little” evidence had been given in Iraq’s declaration to back its claims they it had destroyed its chemical, biological and nuclear weapons programmes.

This again points to the fact that the market feels it is sufficiently short the dollar and does not want to build further positions here, they added.

The dollar also received limited support against the yen from Japan’s Finance Minister Masajuro Shiokawa who repeated in a front-page newspaper editorial his conviction that the yen’s strength was “excessive,” dealers said.

But JP Morgan Chase analyst Minori Takeuchi in Tokyo said it would be difficult for the financial authorities to intervene in the market to weaken the yen before Washington officially appoints John Snow as treasury secretary.

The only thing Japan can do is talk up the dollar-yen, she said.

The euro was changing hands at $1.0253 from 1.0271 late on Thursday in New York, 123.86 yen (123.83), 0.6398 pounds (0.6403) and 1.4623 Swiss francs (1.4616).

The dollar was being quoted at 120.83 yen (120.56) and 1.4266 Swiss francs (1.4235).

The pound was at $1.6029 (1.6031), 193.66 yen (193.26) and 2.2856 Swiss francs (2.2811).

On the London Bullion Market, the price of an ounce of gold eased to $344.85 from 345.0 late on Thursday. —AFP