But parity, while a handy target for currency dealers, is little more than a number, analysts say. Once achieved, they don't expect the euro to stick around there for very long.

"People are extremely nervous about a big move in the euro one way or the other once it hits parity," says David Bloom, currency strategist with HSBC in London.

Bloom is one of those betting the euro will boomerang. After all, the European economy is improving. Economic policies in Germany, the euro zone's biggest economy, are becoming more business-friendly. Investors are expecting short-term interest rates to rise. Bond yieldsalready have risen. Stock markets are up. All of these factors mean the euro should be trading closer to $1.06. (It was at $1.0197 in late New York trading Friday, compared with $1.0195 Thursday.) By year end, it should be at $1.08 and could reach $1.18 if the U.S. stock market corrects 10 per cent to 15 per cent, as HSBC believes it will.

"I'm a parity party-pooper," he says. "This is a sentiment thing. If you push the euro to $1, you're in undershooting territory."

But Kit Juckes, head of European bond and currency strategy at Greenwich NatWest, warns that the odds are that the euro will trade lower still -- before rebounding even more sharply. After breaking $1, the euro could be worth just 98 cents a mere 48 hours later as investors search for a natural stop, he says.

Under the worst-case scenario, the euro's losses could prompt investors to sell more euro-denominated assets, as they have over the past month in the bond markets, putting yet more pressure on the beleaguered currency. Juckes maintainsthat the underperformance of European bond markets compared with those in the US over the past month in part reflects investors' concerns about the European Central Bank.

"Once that big psychological level [of $1] has been broken, the natural thing to do is to look at the next big target, which is 90 cents," Juckes says. "This is not about economics anymore. It's about [central bank] credibility."

Nevertheless, he thinks the euro will recover to $1.08, where he would consider it fairly valued, by the end of the year. What could trigger a fresh attack on parity? Analysts say it could be the Munich-based IFo research institute's survey of western German business confidence. The headline index level is expected to rise to 91.0 from 90.4 in May. Then comes Greenspan's semiannual Humphrey-Hawkins testimony on Thursday before the Houe banking committee, followed by an appearance before the Senate banking committee on July 28.

"The market is looking for any excuse" to push the euro to parity, says HolgerSchmieding, European economist at Merrill Lynch. "Even if the IfO report is good, the market probably will not be too impressed. It won't reverse market sentiment."

Analysts agree on one thing: Despite ECB President Wim Duisenberg's talk Thursday that a tightening bias is creeping into policy deliberations, interest rates won't actually rise anytime soon.

Of course, the euro may not even hit parity, at least not for a while. Technical indicators are improving, says Klaus Kusber, currency strategist at Dresdner Kleinwort Benson in Frankfurt. If the euro breaks above $1.0260, it could be at $1.04 within days. One trigger could be a slowdown in money flowing into the U.S. The gap in bond yields between the U.S. and Europe already has shrunk, reducing the attractiveness of US fixed-income investments. A correction in the U.S. stock market also could take the edge off the dollar.

The euro's fair value is closer to $1.18, he says, though he expects it to remain undervalued for some time. Kusber predicts itwill reach $1.09 at year end and then gain throughout 2000 toward $1.20.

"I think the euro is stabilizing, at least initially," he says. "I'm now bullish for the euro to go in the opposite direction."

Euro hits new low against yen

Jo Winterbottom

London, July 19: The friendless euro fell to a record low against the yen and slipped to hover just above its nadir against the dollar after bearish comments by European officials in weekend newspapers.

Germany's Welt Am Sonntag newspaper quoted Herbert Hax, chairman of the German government's economic advisory council, saying the euro could soon fall below parity against the dollar while European Central Bank board member Eugenio Domingo Solans told Spain's El Mundo the bank would not raise rates to help the currency.

The euro slipped against the US currency but was above its record low of $1.0104 and was hovering near 122 yen after touching a low of 121.88 yen.

The currency failedto take heart from comments by Paavo Lipponen, prime minister of Finland, which holds the rotating six-month European Union presidency until the end of the year, that he believed it would strengthen.

The euro selling spilled over into the dollar, which sagged back to key 120.25 yen support, a level which the authorities have defended in the past.

But there is growing speculation of disagreement over currency policy between Japan and the United States which could mean the Bank of Japan is less aggressive in intervening. However, Japan's top financial diplomat, Haruhiko Kuroda, reiterated cooperation between the Group of Seven industrial nations on foreign exchange policy remained solid.

"The gauntlet's down, we'll see if the Bank of Japan is ready to pick it up this time," said one trader.

Euro weakness dragged European government bonds lower, and German Bund futures could test lows at 107.62 reached on July 8.