Investors sent the euro tumbling briefly below 88 US cents yesterday for the first time this year, partly due to the failure to cut euro-zone interest rates, traders said.

The euro recovered to $0.8815 in late trade on short-covering after dropping to $0.8784 earlier in the day. The single currency was sharply down from 0.8880 in New York late Monday.

Investors were punishing the European Central Bank (ECB) for deciding against an economy-boosting interest rate cut in the euro zone last week, traders said.

"It is again the ECB's credibility in focus," said Standard & Poor's MMS economist Mr Will Rugg. Most players had been unwilling to take aggressive long positions into the long weekend, he said.