a look back

Was it the strength of the "US economy" (which doesn't exist in my view) a year ago? Or the continuation of a "virtuous cycle" of inflowing funds based on, in part, on US-created military instability around the planet?

Euro Falls As Growth In U.S. Saps Capital Flow

Europeans Buy Dollars To Fund Acquisitions Of American Firms

The latest decline extended the euro's losses against the dollar over the past six trading days to about 4 percent and brought the European single currency within striking distance of the record lows it touched in May. Some analysts say the euro could set new lows in the days ahead if U.S. economic data continue to show surprising strength.

The euro fell to 90.66 U.S. cents in New York trading, down from 91.36 cents late Wednesday. The euro also fell against the yen, dropping to 98.05 yen from 99.59 yen Wednesday. Speculation about a possible Japanese rate increase and a desire to bring home funds to cover losses on the falling Tokyo stock market have prompted selling of euros by Japanese investment funds, dealers said.

Sentiment shifted against the euro after the report last week that the U.S. economy grew at an annual rate of 5.2 percent in the second quarter.

That was much stronger than most analysts had expected and raised the possibility that the Federal Reserve Board might increase interest rates later this month, a move that would tend to support the dollar.

''Until we see clear and consistent evidence that the U.S. economy is slowing down, we won't see the euro recovering,'' said Jose Luis Alzola, an economist at Salomon Smith Barney.

The signs of renewed U.S. economic vigor have overshadowed continued solid economic data from the euro zone. The European Commission's index of consumer and business confidence in the 11-nation zone held steady at a 10-year high in July.

Data that simply meet expectations usually fail to move currency markets, analysts said. ''Everyone knows already about the good news in the euro area,'' said Alfonso Prat-Gay, a currency analyst at J.P. Morgan & Co.

The euro is also suffering from the continuing efforts by European companies to bolster their competitiveness and gain access to the U.S. market by buying American companies. Those deals effectively require European companies to buy dollars by the billions, thereby supporting the U.S. currency.

Within the past month, ING Groep NV agreed to pay $5 billion in cash as part of its $7.7 billion acquisition of the financial services and international businesses of Aetna Inc.; Deutsche Telekom AG agreed to pay $7.8 billion in cash as part of its $50 billion takeover of VoiceStream Wireless Corp., and UBS AG agreed to buy PaineWebber Group Inc. for $16 billion

''It's the eternal problem of capital flows going only one way,'' Mr. Prat-Gay said. ''Everyone is buying the U.S., and most of those flows are coming from Europe.''

J.P. Morgan estimates that some $30 billion worth of merger-related capital flows have yet to move through the currency markets from recent deals.

Joe Prendergast, currency analyst at Credit Suisse First Boston, said the euro could test its all-time lows of about 88.50 U.S. cents, and perhaps fall to 87 or 86 cents. But many analysts say they believe the euro will hold firm above those levels, and few see any risk of a free-fall.

Mr. Prendergast said the euro zone was likely to experience growth of about 3.5 percent in the second half of this year, about the same as in the United States.

There are signs that capital outflows from the euro zone are slowing. Net outflows of foreign direct investment and portfolio flows from the euro zone ran at a rate of about Û10 billion to Û11 billion a month in the first half of this year compared with a peak of about Û18 billion a month last year, Mr. Prendergast noted.

''We've always viewed this as strong dollar rather than weak euro,'' said John Lewellyn, chief economist at Lehman Brothers.

Mr. Prat-Gay said he did not believe the euro would set a new low against the dollar. ''But then again,'' he added, ''I wouldn't expect much of a rally from these levels.''

In other currency trading, the dollar fell to 108.45 yen from 108.99 yen, and rose to 1.7053 Swiss francs from 1.6892 francs. The pound rose to $1.4950 from $1.4937.