"The (introduction of) euro was driven by politics, noteconomics," remarked Gerard Lyons, global head of treasury research at Standard Chartered Bank in London. "There are structural problems and...the issues over the last week just highlighted some of the obstacles that remain." Lyons said the euro offered great value over the long run but its near-term prospects stayed bearish until US asset markets came under pressure, perhaps early next year, and evidence of a solid recovery in the German economy was seen.

The single European currency tumbled to a fresh four-week low against the dollar of $1.0131, now barely a quarter cent above its lifetime low of $1.0104 set in October. Many traders said a break under $1.00 seemed a matter of time. It also made new historic lows against the yen and the pound of 105.36 yen and 62.79 pence.

The euro's weakness resonated across the thin foreign exchange market, pushing the closely-linked Swiss franc to post-World War Two lows against the yen around 66 yen and four-month lows versus the dollar near 1.58 francs. Dollar/yen was also dragged down to three-week lows below 104 yen.

The dollar and the euro briefly bounced from their lows against the yen after Japan's finance minister Kiichi Miyazawa ordered his ministry to intervene if needed. The market had been particularly wary of intervention in euro/yen after ECB President Wim Duisenberg was quoted by Friday's Financial Times newspaper as saying he would be concerned if the euro fell further.

However, Duisenberg also said the euro's external exchange rate would matter, in economic terms, only if it had a strong impact on euro-zone inflation. Those comments, combined with remarks by ECB board member Eugenio Domingo Solans on Thursday that the Bank had no intention of intervening to defend the euro added to the market's confusion about the central bank's policy stance, traders said.

The single currency was already suffering this week from loss of credibility in euro zone structural reform after government intervention to rescue German construction firm Philipp Holzmann AG and attempts to block cross-border bids for Germany's Mannesmann and Pernod-Ricard's Orangina brand in France.

These added to the euro's negative response to the ECB'shalf-percentage-point credit tightening on November 4, which some economists considered too aggressive. "The major problem for now is the credibility, which is notvery high in terms of European politicians and the ECB," said Michael Rottmann, currency strategist at HypoVereinsbank in Munich. Previously, the ECB intervened on behalf of the Bank ofJapan (BOJ) on June 18, buying euros for yen.