The euro strengthened a little against both the dollar and sterling on continuing fears about Brazil and Russia, as well as further evidence of a slowdown in the UK economy.

However, analysts said that the gains against the dollar are likely to be temporary as the US economy continues to steam ahead and the main European economies look set to slow further.

The markets have also begun to focus more seriously on possible further reductions in European interest rates as data from Germany continues to point towards a slowdown.

According to Dr Dan McLaughlin, chief economist at ABN Amro, the Clinton affair, as well as the fiscal position in Brazil, are undermining the US dollar. However theoretically the dollar should be stronger, as there is no evidence that the economy is slowing down, he pointed out.

The chairman of the Federal Reserve Mr Alan Greenspan was quoted yesterday at the Bank of International Settlements stating that the US economy was slowing down but only moderately. And according to Dr McLaughlin further interest rate cuts are unlikely as the economy looks to have grown by about 4 per cent in the last three months of 1998.

The euro closed at 0.7049 against sterling pointing to 90p for the pound, from 0.7053.

Sterling was hit by news that core factory gate prices are at 40year lows and there is downward pressure on pay settlements. This means the Bank of England could cut interest rates again, economists said.

long a worry for the Bank of England's rate-setting committee may be starting to fall.

Accountants KPMG said the number of companies going into receivership had accelerated and forecast this would continue.

But Dr McLaughlin added

There are growing expectations of euro rate cuts as German industry orders fell for the second month in a row in November, adding fresh evidence that the economy is in the grip of a slowdown.