LONDON (AFP) - The euro approached its record high against the dollar as markets waited nervously for data on US capital flows, amid concerns about how the United States will fund its huge trade deficit.
The single European currency stood at 1.2980 dollars in early European trading against 1.2945 late on Monday in New York.
The euro rose to as high as 1.2984 dollars at one point, closing in on a record high of 1.3005 dollars reached on Wednesday of last week.
Against the yen, the dollar was quoted at 105.25 compared with 105.26 on Monday.
All eyes were turned towards US Treasury International Capital flow data, due to be released later Tuesday -- a key indicator of how the gaping US current account deficit is being funded.
"On the capital flow side the dollar continues to suffer from negative foreign direct investment and equity portfolio flows," said HBOS currency analyst Steven Pearson.
He described the capital flow data as a "source of dollar vulnerability".
Market participants were also cautious ahead of a meeting of EU finance ministers, which was due to end later Tuesday, with dealers on alert for any further comments from European officials about the rise of the euro.
Dutch Finance Minister Gerrit Zalm told a news conference Monday that ministers "agreed that excess volatility and disorderly movements in exchange rates are undesirable for economic growth."
French finance minister Nicolas Sarkozy said that the sharp decline in the value of the dollar was the result of the "accumulation of deficits of our American friends".
The remarks from eurozone policymakers "cast a near term cautionary tone over markets," Commerzbank analysts wrote in a note to clients.
"However, (given) that specific reference is being made to US structural imbalances as a driver of dollar weakness, markets have turned to consolidation rather than a reversal of recent moves," they added.
US Treasury Secretary John Snow, in London on the second leg of a four-nation EU visit, said that Washington was committed to reducing its budget deficit, which he acknowledged was "too large".
Snow also called on European and other nations to remove barriers to economic growth.
"In the United States we know that our deficit's too large. It's unwelcome. It needs to come down. The president's committed to bringing it down," he told BBC radio.
On Monday in Dublin Snow reiterated his well-worn phrases about Washington's support for a "strong dollar" and the need for open markets to set exchange rates.
Snow will attend a meeting Friday in Berlin of finance ministers and central bank governors of the Group of 20, which includes the G7 as well as large developing countries including China and Brazil.
The euro was changing hands at 1.2980 dollars from 1.2945 late on Monday in New York, 136.63 yen (136.31), 0.7005 pounds (0.7008) and 1.5233 Swiss francs (1.5260).
The dollar stood at 105.25 yen (105.26) and 1.1737 Swiss francs (1.1792).
The pound was at 1.8523 dollars (1.8466), 195.06 yen (194.34) and 2.1753 Swiss francs (2.1775).
On the London Bullion Market, the price of an ounce of gold stood at 437.50 dollars against 439.50 late on Monday.
11/16/2004 - 11:59 GMT - AFP