Analysts said the euro's rally was assisted by French producer price figures and Italian industrial orders data which came in above expectations and followed strong readings in German and Italian inflation data released earlier this week.

The overall French PPI index rose 1.3 percent on the month in May for a year-on-year increase of 11.4 percent. Even after excluding the volatile energy and food prices, the index was up 2.5 percent on the year.

Italian April industrial orders rose an unadjusted 15.9 per cent year-on-year compared with a rise of 7.5 percent in March.

The rally in euro/dollar was accompanied by talk that a European national central bank was buying euros for commercial purposes.

"The euro is looking perky." said Lee Ferridge, head of global currency strategy at Rabobank in London.

"Now Fed is out of the way the focus has switched back to Euroland and the data has been good which has given the euro a boost. People are looking for it to return back to the $0.9700 level it captured before."

The euro rallied one percent against the dollar to $0.9601, its highest since June 20.

A decision by the US Federal Reserve this week to keep interest rates steady and its statement acknowledging signs of a slowdown in the booming US economy came in stark contrast to strong euro zone inflation data, which were seen pointing to a European Central Bank rate hike before long, traders said.

"It seems realistic to admit that the end of the US hike is near," said Gilles Borrel, head of global treasury sales at Westdeutsche Landesbank in Paris.

"There's still some leeway on the upside on the European side, so the euro, mechanically, should improve."

The single currency also rose to 10-day highs against sterling at 63.45 pence and against the yen at 101.11.

The yen had pared some of its earlier losses amid position adjustment ahead of the end of the second quarter and a virtual four-day weekend in the United States, where Tuesday is the Independence Day holiday, traders said.

Dollar/yen had drifted off an earlier peak of 105.72, but was more than one percent above two-month lows of 103.88 set a week ago.

"The point is that on any retreat in the yen, everybody gets excited that it's a reversal, but still this has not really taken place," said Borrel of Westdeutche.

Many in the market were sceptical that the yen's retreat was the start of a trend reversal, given persistent speculation that a robust reading in the BoJ's quarterly "tankan" business survey next Tuesday would prompt the bank to raise rates at its next policy meeting on July 17.

-- (Reuters)