Euro advocates will find support at ASEM talks

Euro advocates will find support at ASEM talks

LONDON (Reuters): Euro zone policymakers could be preaching to the converted if they use a weekend meeting with their Asian counterparts to promote Europe's single currency.

A two-day Asia-Europe meeting (ASEM) kicks off in Kobe, Japan on Saturday and is expected to give euro zone countries a chance to plug their currency at a time when it is reversing nearly two years of declines.

And signs are that their audience -- which comprises Japan, China, South Korea, Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam -- may not need much convincing.

The Hong Kong Monetary Authority said on Wednesday it was likely to increase its holdings in euros this year as it was thinking of looking into currencies as a way of making profits and was wary of the possibility that the dollar could fall.

Such plans are no surprise given Japan said on the same day that the euro's rally had helped boost the value of its foreign exchange reserves by more than $7 billion in December.

"The euro is an easier sell than ever before, and given the relative economic performance between the U.S. and the euro zone, central banks will be inclined to invest at the top end of the portfolio guidelines," said Adrian Cunningham, head of economics at Abbey National Asset Managers in Glasgow.

"I would anticipate that central banks would act in a measured and timely fashion rather than aggressively but if they up their weighting, it will add to confidence (in the euro)."

Joly Dixon, director of international monetary affairs at the European Commission, said earlier this week the region's ministers would not be trying to "sell" the euro at the ASEM gathering.

Still, he added that the meeting was important to make sure that "the choice of weightings (of reserves) is made on sound economic grounds rather than just pure market sentiment in the short term."

For much of the past two years, market sentiment has worked against the euro, while economic arguments have failed to convince euro bears as U.S. growth has easily outstripped euro zone economic expansion.

When ASEM leaders met in October 2000, the euro was hitting record lows and gloom about its outlook was rife, even though the Group of Seven nations had made their first joint foray into the currency markets in five years to intervene in its support.

The euro's dismal performance, which had seen it lose about a third of its value against the dollar and the yen since its launch, had disappointed investors and central bankers alike.

Asian central banks, some of the largest holders of reserve currencies in the world, had expressed enthusiasm about the euro before its inception but had begun to sound a more cautious note by the middle of 2000.

Chinese officials said last year that the weakness of the single currency had made Beijing hesitate from fully embracing the currency, with one finance official quoted as saying: "We hope it can appreciate but it seems it always falls."