"Bank Negara welcomes the introduction of the euro," a Bank Negara spokesperson said in a statement in response to written questions from Reuters.

The central bank said that from the investment perspective, Europe's new single currency had created the second largest financial market, with depth and breadth second only to that of the United States.

"The replacement of 11 legacy currencies with the euro will also reduce the hedging and transactions costs," said the statement, believed to be the central bank's first comments on the euro since its introduction on January 1.

"Given that Malaysia has trade links with Europe, our exporters and importers would no longer be burdened with several currencies."

Finance minister Daim Zainuddin said earlier this month that the euro would enableMalaysia to reduce its reliance on the dollar in foreign trade.

The central bank, asked if the euro would permit Malaysia to depend less on the dollar as a means of trade payment, said: "The currency of trade settlement is dependent on the willingness of the exporter and importer."

It cited a Japanese exporter asking for the US dollar as the currency of settlement. "The demand for a certain currency settlement would be dependent on the expectation of potential performance," it said without elaborating.

Malaysia pegged the ringgit at 3.80 units per US dollar as part of wide ranging capital controls introduced last September to prevent volatility in its currency.

Bank Negara declined to say whether the emergence of the euro would permit Malaysia to scrap its peg against the dollar earlier than otherwise.

"Any decision on the current peg of the Malaysian ringgit against US dollar would take into account a wide range of domestic and external factors," the statement said.

Second finance ministerMustapa Mohamed said this week that the country's deutsche marks and French franc reserves had already been converted into the euro since January 1.

But Malaysia will monitor the progress of the euro over the next few weeks before deciding whether to convert more of its foreign reserves into the euro, Mustapa was quoted on Monday as saying.

The central bank said: "The euro is part of the Bank Negara's reserves as part of our policy of portfolio diversification." It did not elaborate.

Earlier this month, Prime Minister Mahathir Mohamad's cabinet asked the ministry of international trade and industry to study the implications of the euro on the economy and trade.