LONDON, March 7: The euro advanced to a new four-year peak against the dollar on Friday as fears about an imminent war rose after Washington ratcheted up the pressure on Iraq.

The single European currency was being traded at 1.1027 dollars from 1.0972 late on Thursday in New York.

Meanwhile, the dollar edged lower to 117.22 yen from 117.29 on Thursday.

The international standoff with Iraq appears to be entering its final stages, causing the dollar to convulse in the process, HBOS analysts said.

The dollar’s latest wobble came after US President George W. Bush said that the final stages of diplomacy had been entered.

For those who urge more diplomacy, I would simply say that diplomacy hasn’t worked. We’ve tried diplomacy for 12 years. Saddam Hussein hasn’t disarmed, he’s armed, Bush said.

With UN Security Council members China, France, Germany and Russia still seemingly opposed to a new resolution authorising war, analysts say the market is coming round to the view that the United States is likely to lead an attack on Iraq without a fresh mandate.

That, they argue, is potentially damaging for the dollar since it would leave the United States and its economy more open to the threat of terrorist reprisals and would require Washington to bear a greater share of the costs of rebuilding Iraq.

We have few doubts that unilateral action against Iraq would be outright dollar negative in the weeks ahead as foreign investors would become more reluctant to cough up the capital needed to finance the US current account deficit, analysts at WestLB said in a note to clients.

Traders were keeping a close eye on a key report from chief UN weapons inspector Hans Blix due later Friday.

One leading British newspaper, The Times, claimed that Blix was set to deliver his most positive verdict yet on Iraq’s cooperation on disarmament.

But Bear Sterns currency analyst Steve Barrow said the reaction to the report was unlikely to be clear cut.

We have seen enough of these before now to know that his comments give ammunition to both the hawks and the doves, he said.

The dollar was under less pressure against the yen as the ongoing standoff between North Korea and Washington suppressed demand for the Japanese unit.

The state-run Korean Central News Agency claimed earlier that Bush’s refusal to rule out the military option to resolve the crisis showed he was planning to launch a pre-emptive strike on the Stalinist state.

The euro was changing hands at $1.1027 from 1.0972 late on Thursday in New York, 129.26 yen (128.66), 0.6872 pounds (0.6840) and 1.4647 Swiss francs (1.4637).

The dollar was being quoted at 117.22 yen (117.29) and 1.3281 Swiss francs (1.3342).

The pound was at $1.6051 (1.6034), 188.12 yen (188.06) and 2.1318 Swiss francs (2.1393).

On the London Bullion Market, the price of an ounce of gold rose to $356.25 from $353.95 late on Thursday. —AFP