NEW YORK, May 10: The euro extended a four-year high against dollar on Friday, supported by the yield advantage European assets hold over US assets before investors booked modest profits that left the euro little changed on the day.

Thursday’s decision by the European Central Bank to leave benchmark interest rates at 2.50 per cent, double those in the United States, preserved the main reason for investors to continue putting their cash into European assets.

For the week, the euro rose 2.25 per cent against the greenback to $1.1535, its highest level since it was launched in January 1999 before pulling back to $1.1492, a gain of 0.13 per cent on the day. The euro is now about 2.5 cents from its launch price at $1.1747.

Without a cut of rates or intervention there is nothing to turn the tide in favor of the dollar, save for modest profit-taking, said Mike Malpede, senior foreign exchange analyst at Refco Group in Chicago.

There are fairly good indications that the capital inflows into the United States have slowed dramatically, he said.

Those investment flows have slowed as investors seek higher yields than those in the United States, where economic growth, albeit higher than in Europe, is sluggish and a record high current account deficit weakens demand for dollars.

US exporters, especially the battered manufacturing sector, are to benefit from the dollar’s decline by gaining market share and improved pricing power.

J.P. Morgan Chase said in a research note on Friday that a sustained decline in the dollar will add 0.75 per cent to gross domestic product growth in 2004.

The numbers out of Europe are pretty bad, but we are not looking at growth differentials or prospects. We’re basically looking at yield, said John McCarthy, director of foreign exchange at ING Capital Markets in New York.

The fact that the ECB didn’t cut rates yesterday maintains a healthy yield spread to the dollar. That is the story, and the driving force behind the foreign exchange moves.

The euro also hit a record high against sterling of 71.94 pence before investors took profits and knocked the currency to 71.56 pence, a loss of 0.13 per cent on the day.

Against the yen, the euro rose to a record 135.27 yen before slipping back to 134.66 yen, up 0.10 per cent on the day.

Meanwhile, suspected yen-selling by Japan helped support the dollar against the yen. The US currency bought 117.20 yen up 0.09 per cent on the day and well above Thursday’s 10-month low of 116.02 yen.

Japanese Finance Minister Masajuro Shiokawa said the yen had strengthened too much but declined to comment on whether Japan had intervened in the market to stem the its rise.

Shiokawa’s deputy, Zembei Mizoguchi, also declined to comment on whether Japan had intervened.

US Treasury Secretary John Snow reiterated on Friday that he favors a strong dollar, but said the Treasury has no target for the currency.

ECB chief Wim Duisenberg said on Friday that the bank needed more evidence, notably on the impact of a rising euro on growth, before deciding whether it should cut interest rates.

Daniel Katzive, currency strategist at UBS Warburg in Connecticut, wrote in a research note to clients: While we can’t rule out an odd comment warning about euro strength from government officials, we do not expect the ECB to be an obstacle to further euro gains.—Reuters