But their optimism failed to brake the five-month-old euro's decline and economists said their statement opened the door for further drops in the currency.

In a draft communique for release after a two-day summit meeting in Cologne, the leaders said the euro's current weakness was no cause for concern.

"The European Council is not at all concerned by the current development in the euro's foreign exchange rate," the draft statement, translated into English by Reuters, said.

"The determining factor in the recent developments of exchange rates among the main world currencies lies in differences in economic developments, which are expected to move closer together in the course of this year and the next."

The EU's commitment to sound economic policies meant the currency had good prospects to rise longerterm, the statement added.

The comments came after the currency dipped to an all-time low of around $ 1.0275 on Friday morning. It is now over 12 per cent below the level at which it was launched in January.

"Today's statement accepts short-term (euro) weaknes simplicitly," said Rob Hayward, economic adviser at Bank of America in London.

The new low was reached despite Yugoslav Presdent Slobodan Milosevic's apparent acceptance of an international peace plan for Kosovo, which cleared a way to end conflict in the region. The Kosovo war had been a factor weighing on the euro.

EU leaders in their statement attributed the recent repeated falls in the euro to the marked contrast in economic developments in Europe and the United States.

The leaders also addressed some issues which have been worrying financial markets, reaffirming their commitment to stability and reform policies to help boost economic growth and employment and to the stability pact on fiscal discipline.

But financial market participants,after briefly pushing the euro slightly higher on the statement, concluded they were not impressed. By 08:45 GMT the euro was at around $1.0300.

Paul Meggyesi, currency economist at Deutsche Bank in London, said: "We are seeing new life lows being hit on a daily basis and I don't see any reason why that is going to change."

Padhric Garvey, senior bond strategist at ABN Amro, argued that the EU was in fact quite happy to see the currency fall further, banking on the idea that speculators themselves would soon realise the error of their ways.

"They are keen to avoid presenting a target for the markets. In their own minds they are quite clear that there is a target of parity (to the dollar) and I sense that they would be willing to allow it to trend through parity knowing the markets would at that point begin to price in value in the euro."

Analysts have complained about the large number of differing comments emerging from European officials about the euro, which they say are not helpful formarkets.

"Their verbal indiscipline is becoming a problem," Meggyesi said. But finance ministers pledged informally to try to address this problem.

German state secretary to the finance ministry CaioKoch-Weser said the finance ministers had fought shy of giving carte blanche approval to a proposal saying that only the ECB should normally make comments on the euro currency rate.

But "good discussions" on the issue had led to an informal agreement for greater self-discipline in such utterances.

"We are not changing the framework, but will improve inpractice," he said.

In an immediate demonstration of such coordination, Koch-Weser made clear that Friday's euro comments from the leaders had indeed been agreed with Europe's central bank.