Caution prevailed ahead of Tuesday's Group of 20 meeting in Montreal, with dealers mindful of the last euro rescue mission on the eve of a Group of Seven meeting last month.

European Central Bank President Wim Duisenberg will attend the meeting, where the currency's weakness could be discussed. But a lack of anything more than verbal support is expected to see the euro come under renewed pressure later in the week.

"The market is alert to intervention and there are no prizes for going short ahead of the G20 meeting," said Mr Neil Mackinn on, senior currency strategist at Merrill Lynch in London.

"Beyond that, however, the euro picture remains very negative and I would not be surprised to see the euro diving to fresh all-time lows."

The euro hovered near $0.84, within sight of last week's record lows around $0.8325. It changed hands around 91.50 yen, compared to last week's lifetime lows of around 89.50.

An abrupt end to Italy's auction for next-generation mobilephone licenses also dented the euro, as analysts revised down potential foreign inflows. The auction ended raising just 12.16 billion euros - half the amount expected - after Blu, the smallest of Italy's four mobile phone companies withdrew from the contest.

Meanwhile, European officials tried to prop up the euro by means of vocal support. Bank of France governor Jean-Claude Trichet said on Monday a strong euro was in the interest of the European economy and reiterated support for the ECB's president Duisenberg.

The ECB chief was blamed for much of the euro's slide last week after an interview with a British newspaper in which he appeared to rule out the prospect of imminent intervention.

The release of consumer price data for the German state of Saxony were also seen as euro-negative. The data showed prices fell 0.3 per cent in the month of September.

"The market has read the German inflation numbers as taking pressure off the ECB for another rate hike," said Mr David Brown, chief economist at Bear Stearns.

But he added that with euro zone inflation running at 2.8 per cent - against a target of 2.0 per cent - the ECB was not off the hook yet.

"There is clearly still a lot of inflationary pressure in the system and we expect another quarter-point rate hike on November 16," he said.

Worsening tensions in the Middle East, resurgent oil prices and volatility in the US stock market favoured safe-haven demand for other European currencies, especially sterling.

Sterling burst higher against the euro to hit fresh five-month peaks around 57.70 pence earlier on Monday. It also gained against the yen, dollar and the Swiss franc. Violence between Israelis and Palestinians continued over the weekend as Israeli Prime Minister Ehud Barak declared time-out from the peace process for what he called threatening language against Israel at an emergency summit of Arab leaders in Cairo.