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European Central Bank Stands Pat

Duisenberg tries to talk up the euro after it hits another new low.
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FRANKFURT -- The European Central Bank Wednesday left interest rates unchanged and ECB President Wim Duisenberg turned his attention to reviving the flagging euro.

After the ECB's 17-member

Governing Council

left the eurozone's benchmark interest rate at 2.5%, Duisenberg expressed his confidence that the euro's slide against the dollar is temporary in nature. Earlier Wednesday the euro hit $1.0342, a new low.

"The euro is a currency firmly based on internal price stability and therefore has a clear potential for a stronger external value," Duisenberg told journalists at a press conference following the council meeting. "I see more factors pointing to an appreciation of the euro than a further depreciation."

The euro, which has lost more than 11% of its value against the dollar since its inception Jan. 1, renewed its slide last week after Italy

said it would not make its budget-deficit target for the year amid sluggish growth. The weakness increases the pressure on the Continent's monetary authorities, who have hoped to avoid intervening in the currency markets on the euro's behalf.

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After the

European Commission

signed off on Italy's widening deficit, officials emphasized that Italy had received an "exception," but the damage to the euro had already been done. The euro was already weakening against the dollar as the

Federal Reserve

moved to a tightening bias, raising the prospect that interest rates would move higher. Italy's failure to hold down its deficit has raised fears that the euro could become a "soft" currency, more like the Italian lira than the rock-solid German mark.

Referring to the Italian situation, Duisenberg said: "I would be dishonest if I said there hadn't been a loosening" of the interpretation of the requirements for fiscal rectitude. "Were this to become a trend across Europe, there would be real reason for concern," Duisenberg added.

Duisenberg declined to comment on whether the ECB during the council meeting had discussed the possibility of intervening to support the euro.

The ECB sets monetary policy for Germany, France, Italy, Spain, Portugal, the Netherlands, Belgium, Finland, Luxembourg, Ireland and Austria.