LONDON, Aug 17: The euro climbed against the dollar on Friday as analysts speculated that action by the Federal Reserve to calm financial markets indicated a cut in key US interest rates was possible in September.

In late Europe trade, the euro gained to $1.3491 from $1.3425 late on Thursday in a reversal of the trend seen on the foreign exchange market for most of this week.

The dollar fell slightly against the yen to 113.85 yen from 113.86 late on Wednesday.

The dollar and yen have risen this week, drawing strength from the turmoil on world financial markets.

The dollar benefits from its status as a safe-haven in times of instability, while the yen gained on the back of reduced “carry trades” which have been depressing its value.

On Friday, the Federal Reserve announced a 0.50-point cut to the rate it charges commercial banks for borrowings in a bid to increase liquidity in the banking market and forestall a possible credit crunch.

Analysts said this could portend a cut in the main US interest rate, the Fed funds rate, which has been at 5.25 per cent since June 2006.

“The clear message today is: if the market turmoil continues, they (the Fed) will ease policy to counteract negative fall-out on growth,” said Patrick Franke at Commerzbank.

The dollar also suffered from a very low US consumer confidence survey.

The University of Michigan's preliminary consumer sentiment index for August fell to 83.3 from 90.4 to reach its lowest level in a year and way below expectations for a much smaller decline to 87.5.

Paul Ashworth at Capital Economics said given an unexpected jump in the index in July, a fall in August had been expected.

On that basis, the impact of recent stock market losses on confidence “appears to have been muted so far,” offset by the positive effect of falling gasoline prices.—AFP