NEW YORK, Dec 20: The dollar climbed on Friday on some short-covering ahead of the weekend but traded off highs after a US intelligence official said the government was reviewing possible threats of attacks on US interests.

Early in the New York trading session, a report from ABC News, published on its Web site, said US intelligence sources had received information about a credible and imminent threat to New York City.

The terror threat report did have an impact on the dollar. It forced the jump from $1.2368 onward. But since then, nothing much is going on, said Phillip Capone, vice president for FX derivatives at Fortis Bank in New York.

But the Federal Bureau of Investigation, however, said there was no truth to the ABC News report pointing to a possible attack on New York City that triggered the trading action.

Still the US intelligence official said on Friday the government was “very concerned” by the volume of threats to US interests at home or overseas.

The euro was around $1.2375, down 0.4 per cent after reaching record highs of $1.2438 on Thursday, according to Reuters data. For the year, the euro is up roughly 19 per cent.

European Central Bank Governing Council member Ernst Welteke in an interview on Friday stressed that the euro’s strong rise is not having a strong negative impact on business sentiment.

Ahead of the weekend, traders embarked on some short-covering, booking profits on other major currencies by buying back the dollar.

Earlier, there was a pretty good amount of short-covering in the euro/dollar that took it to $1.2345 and after a few minutes we are back to around $1.2380 - it is a pretty quick move. Whether it is sustainable or not is questionable, but the markets are thin and so proportionally smaller flows can have more of an effect, said Andrew Delano, currency strategist at IDEAglobal in New York.

A buildup of evidence showing a strengthening US economy has so far done little to prompt dollar bears to change direction.

The bottom line is, as long as strong US economic growth does not translate into higher US interest rates, the US dollar is going to remain on the defensive, said Alex Beuzelin, foreign exchange market analyst at Ruesch International.

Yesterday we saw that standout December Philadelphia Federal Reserve manufacturing survey, and the dollar’s inability to benefit from that will only tend to compound the market’s negative sentiment for the US currency, he said.

Backing up that sentiment was a semi-annual poll from the Philadelphia Fed on Friday that showed 25 private-sector and academic economists expect US economic growth of over 4 per cent in 2004, while inflation is seen falling below 2 per cent next year.

The dollar has fallen precipitously in recent weeks and investors are taking profits and covering their short-dollar positions ahead of the new year, analysts said. “Shorting” a currency is effectively a bet that it will decline.

But this in no way reflects an improvement in investors’ sentiment for the US dollar, said Beuzelin.

Against the yen, the dollar was up 0.3 per cent at 107.81. The greenback was around 0.7 per cent higher against the Canadian dollar at C$1.3382.

The euro hit four-month highs above 133.80 yen on Friday, before trading back down to 133.42 yen. Sterling was down 0.4 per cent against the dollar at $1.7653.—Reuters