LONDON, Sept 3: The euro fell below $1.44 for the first time in eight months on Wednesday, as a bleak economic outlook reigned and the market anticipated lower eurozone interest rates, dealers said.

The euro dropped to a low of $1.4385 in London trading before rising later to $1.4494, below its value of $1.4517 in New York late on Tuesday.

“The dollar continues to cruise through key resistance levels,” said currency analysts at Credit Suisse, “despite a lack of further support from developments in rates or commodity markets.”

Sterling meanwhile hit a fresh record low against the euro and near 2.5-year trough versus the dollar as gloomy news cast a pall on the British economy, which is forecast to fall into recession before the end of 2008.

The euro retreated against the Japanese currency to stand at 156.85 yen from 157.61 on Tuesday.

A second EU estimate of growth in the second quarter confirmed on Wednesday that the economy of the 15 nations sharing the euro contracted for the first time since the bloc was formed in 1999.

Another survey, the purchasing managers’ index (PMI), showed business activity in the 15 nations sharing the euro contracted for the third month running in August.

The Organisation for Economic Cooperation and Development on Tuesday raised its forecast for growth in the US economy this year while downgrading its outlook for the eurozone, Japan and Britain, which it said would enter recession this year.

The US greenback was buoyed last week by a rise in US manufacturing orders in July that was higher than expected and the mood lightened further Wednesday with increased optimism for growth due notably to falling oil prices.

But markets were watching out for the US Federal Reserve’s so-called Beige Book report on the economic climate, due on Wednesday.

“The Beige Book is likely to paint a mixed picture of US consumer spending,” said Mitul Kotecha, an analyst at Calyon, predicting that negative assessments of the labour and housing markets would check the dollar’s progress.

Dealers meanwhile said that a slide in oil prices should dampen inflation and leave more room for the European Central Bank and the Bank of England to reduce interest rates, making European currencies less attractive to investors.—AFP