BBC Europe Correspondent Jonathan Charles: A fresh impetus to European integration

Rising to a peak of $1.1877 after the London opening and strong early buying in Sydney and Hong Kong, the euro settled back to close around $1.18 in Europe, still more than a cent above its pre-set opening level of $1.1675.

The currency also rose against the pound to stand at 71.28p after starting life at 70.45p but fell marginally against the Japanese currency to 131.9 yen.

European leaders welcomed the euro's confident beginnings, predicting that monetary union would fulfil its goal of ensuring peace and prosperity for the 290m residents of Euroland.

Note of caution

As the dust settled on day one, analysts cautioned against claims that the euro was set for a dream run. As expected, most of the euro-dollar and euro-sterling deals were small and designed to test the market's settlement systems.

"The euro has arrived" pronounce banners at the Frankfurt stock exchange

"In all likelihood, it'll become the second largest traded currency, but it's too soon to say so," said Paul Meggyesi, senior currency economist at Deutsche Bank.

US trade secretary Robert Rubin rejected American concern over the euro's strong start against the dollar saying: "As we've said many times, if it's good for Europe then that's good for the United States. A strong Europe is good for the US."

A strong euro is a two-edged sword for Euroland. It will boost the credibility of the new currency, but could threaten the region's export industries.

Economic observers sounded a warning that too strong a performance in coming months would hit Euroland exporters. A strengthening euro will see rising prices rise for their foreign customers.

Few hitches

Traders need some time to get used to the euro rates

There had been fears that some settlement systems would not cope with the new currency, but banks and markets have reported trouble-free trading so far.

Misdirected and miscalculated payments could have cost millions and created chaos across the world's financial system.

Consumers, meanwhile, can sit back and relax. Euro bank notes and coins will not be introduced before 2002, so they have three more years to get used to the new currency and euro prices.

Stability key

During the first months of trading, the euro-dollar rate is expected to be somewhat volatile as currency markets strive to achieve a balance between the two currencies.

Norbert Walter: euro a challenger to dollar in financial markets

Jeremy Hawkins, chief economic advisor at Bank of America in London, said: "The ECB is keen to see the euro as stable as possible, in particular in the first phase of trading. The ECB doesn't want to see it too weak or too strong."