The beleaguered euro bounced back Thursday, boosted by ideas European leaders will step up efforts to head off a full-blown emerging-markets crisis in Eastern Europe and to shore up the euro-zone economy.
The single currency had plunged to nearly three-month lows versus the U.S. dollar this week and was on the defensive against most major currencies, partly on mounting worries about exposure of euro-zone banks to troubled Eastern European economies.
"There's a sense perhaps that Europe is going to take an activist role, or acknowledge that more needs to be done," said Daragh Maher, currency strategist at Calyon.
The euro traded at $1.2685, up from $1.2532 in North American trade late Wednesday.
Germany's Cabinet on Wednesday approved legislation that would allow the forced nationalization of banks as a last resort, a measure aimed at troubled bank Hypo Real Estate (DE:HRX: news , chart , profile ) .
Attention Thursday will turn to a joint news conference in Berlin with German Chancellor Angela Merkel and European Commission President Jose Manuel Barroso amid growing calls for more coordinated global support for troubled economies in Central and Eastern Europe.
World Bank President Robert Zoellick, in an interview with the Financial Times published Thursday, said the bank was working with the International Monetary Fund and other institutions to aid the region but needed more support from Brussels.
The U.S. dollar index a measure of the greenback against a trade-weighted basket of currencies, slipped to 87.276, down from 88.138 in North American trade late Wednesday.
A modest rebound in appetite for risk undercut safe-haven flows into the U.S. dollar, Maher said. Asian equities rallied, while Europe was mixed. See Asia Markets. Read Europe Markets.
The dollar slipped versus the Japanese yen, backing off from a recent run to a two-month high versus the Japanese currency.
The yen had little reaction to the decision by the Bank of Japan to keep its key interest rate at 0.1% Thursday. The BOJ also said it would expand fund-supplying operations, extend the deadline on its special loan program, and broaden other measures designed to inject money into the economy.
It also said it would begin purchases of 1 trillion yen ($10.8 billion) of corporate bonds from financial instructions with credit ratings of A or higher, effective in March. See full story.
The dollar fetched 93.63 yen, down from 93.78 yen late Wednesday.
The British pound also rebounded versus the dollar, rising to $1.4384 from $1.4210.
The Office for National Statistics on Thursday said U.K. public finances were in worse shape than expected, with the public sector repaying just 3.3 billion pounds in public borrowing compared to forecasts for a repayment of around 7 billion pounds.
January typically sees a big repayment because it is a major month for income and corporate tax payments, noted economists at Barclays Capital.
Also, the ONS said it would reclassify Lloyds Banking Group (UK:LLOY: news , chart , profile ) and Royal Bank of Scotland (UK:RBS: news , chart , profile ) as public companies, a move that is likely to add 1 trillion to 1.5 trillion pounds to public sector debt levels, raising the debt to gross domestic product ratio by 70 to 100 basis points.
The U.K. government holds large stakes in both banks after recapitalizing the institutions last fall.
