The European single currency was under renewed pressure Friday, weighed down by evidence the euro zone is unlikely to see a quick recovery from recession.
The preliminary Markit composite purchasing managers index for the euro zone slumped to a new record low of 36.2 from 38.3 in January. It had been forecast to rise to 38.7.
That reflected a drop to record lows in the manufacturing and service-sector PMI readings. A figure of less than 50 signals a contraction in activity, while a figure of more than 50 indicates expansion. PMI has been below the 50 level since the middle of 2007.
The drop indicates the pace of the contraction accelerated to a record rate in February after PMI readings posted a modest rebound from previous lows in January. See full story.
"February's sharp drop in the euro-zone PMI indices suggests that it is too soon to judge that the region is over the worst of the economic downturn," said Ben May, an economist at Capital Economics.
Euro-zone gross domestic product shrank by a record 1.5% in the final quarter of 2008, marking the third consecutive quarter of decline. May said the euro-zone PMI drop is in line with a 1.2% quarterly fall in the current quarter.
The figures cleared the way for renewed selling pressure on the single currency, strategists said.
"At the moment, the market has turned decidedly more negative on the euro," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.
The euro tumbled to three-month lows versus the dollar just above $1.25 earlier this week, rebounding slightly on Thursday. The euro traded at $1.26377 down from $1.2688 in North American activity late Thursday but off its morning low of $1.2564.
Markets are also on the lookout for signs European leaders are ready to take action to shore up financially distressed financially strained euro-zone nations, strategists said.
The German Finance Ministry on Friday denied a report in weekly magazine Der Spiegel that it was weighing specific options aimed at rescuing distressed euro-zone members, but said that signs of strain in euro-zone credit markets warrant "joint action" by the European Commission, European Central Bank and euro-zone finance ministers.
German Finance Minister Peer Steinbrueck earlier this week dismissed as "absurd" any suggestion that financial woes could lead to a nation leaving the 16-nation euro zone.
German Chancellor Angela Merkel on Thursday reportedly declined to say whether Germany would aid euro-zone nations under severe fiscal stress, but said the country would move to provide more funds to the International Monetary Fund if needed. See full story.
The U.S. dollar index , a measure of the greenback against a trade-weighted basket of currencies, rose slightly to 87.675 from 87.543 in North American trade late Thursday.
The dollar jumped to its highest level since December versus a broadly weaker Swiss franc, rising 1% to 1.1844 francs.
Swiss bank shares were under pressure Friday after the U.S. Justice Department said it would press UBS AG to turn over information on as many as 52,000 secret Swiss bank accounts. See full story.
Meanwhile, Swiss legislators will have to decide whether to make adjustments that would effectively weaken the country's tax-secrecy laws, which would carry "severe" economic consequences, wrote strategists at BNP Paribas.
The outlook for the Swiss currency "remains grim," they said.
The British pound reversed early weakness against the dollar and the euro after the Office for National Statistics reported a stronger-than-expected rise in January retail sales volumes.
Sales saw a monthly rise of 0.7%, for a year-on-year rise of 3.6%. Economists had forecast a 0.2% monthly rise and a 2.5% annual jump.
The pound traded at $1.4318 versus the dollar, up from $1.4291 late Thursday. The euro was 0.6% lower versus sterling at 88.10 pence.
The dollar dipped versus the Japanese currency, changing hands at 94.03 yen after trading at 94.26 yen late Thursday.
