At the same time, the euro got a slight respite Thursday from its recent slide, as the U.S. stock market plunged on concerns about the domestic economy. Late Thursday in Europe, the euro traded around $1.0475, up from the record low of $1.0409 set earlier in the day.

In New York, it traded at 1.0438, down from 1.0455 on Wednesday. Near midday in Tokyo Friday, the euro was at $1.0427.

The euro had begun sliding in earnest on Wednesday, after news that the European Union had allowed Italy to relax its budget-deficit target. Despite the bounce up Thursday, many foreign-exchange traders expect the currency to head lower toward $1.0345 in the near term. That level corresponds to the dollar's high against the mark so far during this decade, at $1.8905 marks.

Indeed, a spate of mildly supportive euro remarks from Europeanofficials Thursday left economists and traders with the impression that officials aren't overly concerned about the euro's recent plunge against the dollar. "The comments supported the euro a bit, but overall, what came through was that they can live with the weaker euro," said Patrick Laub, senior foreign-exchange dealer at Landesbank Hessen-Thueringen in Frankfurt. A weaker euro against the dollar could boost export competitiveness and rev up the sluggish euro-area economy.

However, if the euro slips near one-to-one with the dollar, market speculation about possible foreign-exchange intervention will heat up. "Parity is a very powerful level, which could signal a loss of credibility for the euro, and the ECB may draw a line in the sand before we get to that point," said Jeremy Stretch, currency strategist at NatWest Global Financial Markets in London.

In foreign-exchange intervention, a central bank steps into the market to buy or sell its own currency in order to adjust its foreign-exchange rate andsend a signal to investors. Market participants are watching the ECB's foreign-currency levels in an attempt to spot any discreet attempts at cushioning the euro's falls, but no such intervention has been officially confirmed.

In Brussels, the European Commission played down the controversy surrounding Italy's deficit and its impact on the euro. A commission spokesman said the currency's decline reflected a number of factors, most notably the gap between U.S. and European economic performance and interest-rate expectations.

ECB officials continued to express displeasure with the leeway given Italy, which flies in the face of their constant calls for fiscal discipline in euro-area countries. Bank of France governor Jean-Claude Trichet said Italy's decision to relax its budget-deficit target isn't in line with th euro-zone's "stability pact," in which euro-member governments agreed to limit their deficits and debt after the Jan. 1 euro launch.

The ECB's chief economist, Otmar Issing, stressed Thursdaythat Germany has no plans to follow Italy's lead in relaxing fiscal discipline. ECB President Wim Duisenberg has warned that such a trend could hurt the euro.

--The Wall Street Journal