Although the euro failed to sustain its initial rally to two-week highs against the dollar despite robust European purchasing managers surveys, perennial euro bears were wrongfooted as the single curency went off to a positive start after a dismal first year, traders said.

"We still haven'T seen flows of any substance, but people'sview on the euro could change if it sustains its gains from here," said Akira Hoshino, Chief trader at Bank of Tokyo-Mitsubishi in London, adding he himself was still not totally convinced about a reversal.

With concerns of possible Y2K computer problems out of theway, focus was shifting to economic fundamentals, which the single currency had mostly ignored in late 1999. The euro rose more than a cent to a two-week high of $1.0185in thin Asian trading, bolstered by European Central Bank President Wim Duisenberg's comments on Sunday that the currency had potential to appreciate.

Duisenberg said in an interview on Dutch television heexpected European growth this year to be faster than growth in the United States."It's quite surprising that they are seeing the euro-zonegrowth outpacing U.S. Growth this year," said Eugen Keller, a market strategist at Dresdner Kleinwort Benson in Frankfurt, noting that the euro's long-term interest were rising.

"Maybe this will open the eyes of forex dealers," he added. Russian President Boris Yeltsin's surprise resignation lastweek was also expected to keep the euro supported.

"The fact that Yeltsin has gone at last is also seen as abonus...the volatility and uncertainty associated with Russia could calm down," said Kevin Ralph, first vice president at Sanwa Bank in Singapore.In addition, a flurry of European purchasing managersindices were generally supportive of the euro. The euro zone-wide manufacturing PMI rose to 57.4 in December, the highest in survey history, from 57.0 in November. Still, by the time the market got the PMI data, the euro hadrun out of steam amid a dearth of dealing interest due to a British holiday, leaning against technical support near $1.01.

The dollar was broadly softer partly due to unwinding ofyear-end safe-haven buying, slipping to one-week lows below 102 yen against the Japanese currency.

Wariness of possible Bank of Japan intervention cushioneddollar/yen's decline, traders said. While previous rounds of BOJ intervention have not clearlyhalted the dollar's decline, caution prevailed ahead of a Group of Seven deputy finance ministers and central bank governors meeting in Japan next week.