LONDON (AFP) --
The euro struggled to hold the line at more than two-year lows against the dollar on Monday as global markets reeled in disorder, with investors looking to find safety at all costs amid the turmoil.
Dealers said the euro has been under heavy pressure for weeks on concerns the eurozone economy is on the slide and that view was bolstered Monday by a very weak German business confidence survey.
Comments from European Central Bank head Jean-Claude Trichet that the ECB could cut interest rates again soon and possibly as early as next month added to the view that the single currency was a one-way bet against the US unit.
The dollar meanwhile continued to benefit from its traditional safe haven status as funds fleeing commodities and emerging markets poured into the currency despite the United States being the epicentre of the crisis.
Dealers said that despite the havoc caused in the United States, investors still see the country as the ultimate market to be in and the dollar as the currency to hold.
Any idea that the euro might dethrone the dollar as the currency of last resort because of the crisis has largely been dispelled although there are some concerns about its eventual true cost for the US economy and financial system.
The yen meanwhile was close to 13-year highs against the dollar as the market discounted Group of Seven statement of concern on exchange rates while the Swiss franc also benefited from its traditional safe haven attributes.
"Euro/dollar only knows one direction: lower ... The continued rise in risk aversion in combination with recession fears keeps the flight into quality alive and supports the greenback," said Antje Praefcke of Commerzbank.
In late European trade, the euro was at 1.2518 dollars, up sharply from an early low of 1.2334 dollars, a level last seen on April 26, 2006 but off late Friday's 1.2623 dollars.
Against the yen, the euro was at 116.27 yen, up from a close to six-year low of 114.92 yen in early deals but still down from 118.98 yen on Friday.
The dollar meanwhile was at 93.35 yen, down from 94.24 yen.
Dealers said that as more funds flee Europe, the commodities and the emerging markets for the safety of the dollar, central banks will have to intervene.
"Eventually, this liquidation pressure will force central banks to intervene but up to the moment of intervention, ongoing deleverage will keep the yen in demand," BNP Paribas analysts wrote.
"We could see another round of coordinated rate cuts. But this will not solve the underlying problem. Rate cuts take away some pressure from domestic players but does not change the process of deleveraging," they added.
German business confidence dropped to the lowest point for more than five years in October, a key survey showed, as the nation's economy reeled from the international financial crisis.
The monthly business climate index calculated by Munich-based economic research institute Ifo fell to 90.2 points in October from 92.9 points September, its fifth straight drop and its lowest level since May 2003, when it reached 89.6 points.
"Germany is heading for a serious recession," warned Bank of America analyst Holger Schmiedling in response to the Ifo data.
"With business confidence declining at a record pace, the economy looks set to shrink noticeably in late 2008 and early 2009."
Finance ministers and central bank chiefs of the Group of Seven in a joint statement voiced concern about "excessive volatility" in the yen and its "possible adverse implications for economic and financial stability."
Speculation has also grown of another round of coordinated interest rate cuts by the world's major central banks to shore up economies.
The US Federal Reserve is expected to cut its benchmark lending rates by at least 25 basis points on Wednesday ahead of the release of third quarter gross domestic product which is expected to have contracted sharply.
In late trade on Monday, the euro changed hands at 1.2518 dollars against 1.2623 late Friday, at 116.27 yen (118.98), 0.8033 pounds (0.7934) and 1.4413 Swiss francs (1.4729).
The dollar stood at 93.35 yen (94.24) and 1.1571 Swiss francs (1.1662).
The pound was at 1.5508 dollars (1.5900).
On the London Bullion Market, the price of gold firmed to 730.50 dollars an ounce from 712.50 dollars late on Friday.
