Euro stable after Danish 'no'

Denmark's central bank has raised its interest rates by half a percentage point to 5.6% to defend the krone, following the country's vote against joining Europe's monetary union.

The move was designed "to avoid uncertainty about the crown's exchange rate", the bank said in a statement.

The euro, meanwhile, slipped only briefly on foreign exchange markets. After touching a low on $0.8765 on Thursday night, the euro rose on Asian markets and kept climbing to about $0.8810 in London trading.

Currency analyst Steve Barrow of Bear Sterns said the single currency was unlikely to fall much further, as the world's central banks were "breathing down the necks" of investors.

"The outcome had long been expected ... fears of more G7 interventions prompted traders to buy back the euro," said Hirokazu Note at Sumitomo Bank in Japan.

A week ago the European Central Bank had intervened on the markets to prop up the euro, taking joint action with the US Federal Reserve, Bank of Japan, Bank of England and others.

Denmark's krone, which is pegged to the euro, was stable as well, helped by swift central bank action.

"Denmark's fixed exchange rate policy will be continued after yesterday's referendum," the bank said in a statement.

On Thursday the Danish government and central bank had issued a statement saying they were ready to take action should the currency come under pressure.

Euro impact

Investors are now going to look at the euro's long-term prospects. Traders said the Danish vote would make it less likely for the UK and Sweden to adopt the euro, which in turn would be a blow to the currency.

However, key to the euro's future will be the performance of the US economy. If it continues to steam ahead and attract foreign investment, the euro is likely to remain weak.

It the US economy falters and the eurozone keeps growing at current rates, the single currency can be expected to recover.

The fate of the euro will be closely watched in Denmark, because the country's currency, the krone, is pegged to the single currency.

Shaky confidence

Trade in the single currency has been nervous since central bank intervention last Friday - the first since the euro was launched in January 1999.

Analysts have said the possibility of fresh support, from the European Central Bank or elsewhere, would keep the markets from challenging the euro aggressively in the immediate future.

But some analysts have questioned whether the euro's recovery would be sustained, saying investors would need better reasons to buy the currency than central bank action alone.

The central banks' intervention received the tacit endorsement of the International Monetary Fund, which is meeting in Prague against a background of angry protests over globalisation.

IMF managing director Horst Köhler, who had earlier suggested the euro was seriously undervalued, said that tracking currency movements was a key part of his organisation's role.