The euro has fallen against the dollar as attention focuses on possible further European rate cuts. A sharp rise in German unemployment pointing to a weaker than predicted economy, combined with a rise in the numbers in work in the US, pushed the dollar higher against the euro.

The euro fell to $1.1537 in late trading from Thursday's close of $1.1662. However, European Central Bank (ECB) chief economist Mr Otmar Issing said he expected the euro to be stable on foreign exchange markets and said the ECB would not pursue an exchange rate-oriented policy.

Mr Issing told reporters he saw no danger of either inflation or deflation in the pipeline.

He also said the German December jobless figures were no cause for a fundamental shift in the assessment of the country's economy and added that unemployment across the euro zone was unacceptably high.

ECB president Mr Wim Duisenberg and other senior central bankers have also reiterated that European interest rates remain on hold for the foreseeable future.

Asked how long he thought the "foreseeable future" would last, Mr Issing replied: "The forseeable future is over when we change our rates."

However, US long-term interest rates went in the opposite direction and stocks hit record highs after news that the US unemployment rate fell in December and payroll employment grew at its fastest rate in more than a year.

The unemployment rate fell to 4.3 per cent from 4.4 per cent, as unusually warm weather in the early part of last month led to a surge in construction jobs.

Jobs outside the farm sector climbed 378,000 on a seasonally-adjusted basis, the largest monthly gain since September 1997, when payrolls grew 386,000.

The report was much more robust than US economists had expected. Economists had projected jobs growth of 212,000 in December and a slight rise in unemployment to 4.5 per cent.