LONDON (AFP) - The euro backtracked further from recent record highs as markets weighed prospects of central bank intervention on the foreign exchange market to slow the single currency`s rise.
The single European currency fell to 1.2880 dollars in early European trading from 1.2894 late on Wednesday in New York.
The dollar dropped to 106.89 yen against 107.08 on Wednesday.
The euro pierced the symbolic 1.30-dollar level on Wednesday for the first time since it began trading on foreign exchange markets in January 1999.
But the euro rally quickly stalled as dealers took profits and reacted nervously to a flurry of comments from eurozone officials expressing concern at the pace of the rise.
"The reversal from the 1.30 level has been sparked by continued verbal intervention from the European Central Bank," said Hans Redeker, head of foreign exchange strategy at BNP Paribas.
"As well there had been suspected physical intervention from the central banks of South Korea, Malaysia and Hong Kong."
In recent days, ECB officials, starting with its president Jean-Claude Trichet, have spoken out against the euro`s rise, which Trichet described as "brutal" and "unwelcome".
Italian Economy Minister Domenico Siniscalco even went so far as to say late Wednesday that the Group of Seven richest countries was considering coordinated intervention on currency markets to stabilise foreign exchange rates.
"We are talking again about intervention, not unilateral but a coordinated intervention," he told reporters.
ABN Amro analyst Aziz McMahon said the comments suggested "a much greater level of concern about the (rise of the) euro among policymakers."
He said the "abrupt change in tone" might be the result of concerns that domestic measures to curb the US trade and budget deficits under the new administration of US President George W. Bush would be "minimal".
However, in order for there to be effective coordinated intervention, the European, Asia and US monetary authorities would have to agree on a common target, which seemed unlikely, Redeker at BNP Paribas argued.
"The US have no interest in a higher US dollar given its external imbalances," he added, alluding to the large US trade deficit.
Redeker said any intervention would just be to take speculative positions out of the market and was unlikely to be very successful.
"This talk about coordinated intervention is a bit like a paper tiger. It does look dangerous but it doesn`t bite."
The ECB`s last foray onto foreign exchange markets was in late 2000. At the time it acted in coordination with other G7 countries to buy euros and sell dollars after the eurozone unit plunged to a record low of 0.8230 dollars.
US officials have been notably silent in recent days about the dollar`s weakness, which makes US exports cheaper on international markets.
The euro was changing hands at 1.2880 dollars from 1.2894 late on Wednesday in New York, 137.66 yen (138.08), 0.6986 pounds (0.6978) and 1.5218 Swiss francs (1.5229).
The dollar stood at 106.89 yen (107.08) and 1.1814 Swiss francs (1.1808).
The pound was at 1.8438 dollars (1.8570), 197.06 yen (197.79) and 2.1785 Swiss francs (2.1812).
On the London Bullion Market, the price of an ounce of gold stood at 433.10 dollars against 433.40 late on Wednesday.
11/11/2004 - 13:02 GMT - AFP