March 4 (Bloomberg) -- The euro fell against the dollar in London for a fourth day as the European Central Bank meets on interest-rate policy after French consumer confidence fell and an expansion in the region's service industries slowed.

The 12-nation currency has fallen 6 percent since rising to a record $1.2930 on Feb. 18, after policy makers expressed concern the gain was hurting the economy. The ECB will probably keep its key interest rate at 2 percent at a meeting today, all 35 economists surveyed by Bloomberg News said.

The euro's decline ``has more room to go,'' said Jake Moore, currency strategist in Tokyo at Barclays Capital Inc. ``The market is much more sensitive to European concerns of exchange rates and interest rates than anyone thought.''

The euro bought $1.2193 at 6:19 a.m. in London, from $1.2206 late yesterday in New York, when the currency dropped to a three- month low of $1.2057, according to EBS prices. The euro may test that low again this week, Moore said. The currency also fell to 134.33 yen from 134.40.

An index based on a survey of 2,000 European purchasing managers compiled for Reuters Group Plc by NTC Research Ltd. fell to a four-month low of 56.2 from January's 57.3, NTC said yesterday. A reading of more than 50 shows expansion in businesses including banks, airlines and hotels.

An index of household confidence based on a survey of 2,00 people fell to minus 23 in February from minus 22 in January, Paris-based national statistics office Insee said Tuesday. The median forecast of 25 economists surveyed by Bloomberg News was for an unchanged reading of minus 22.

`Big Accumulation'

The yen may fall on expectations Japan's record currency sales discouraged traders from betting on gains. It has dropped 4.2 percent in the past month, the biggest decline among the 16 most-traded currencies tracked by Bloomberg, trimming its 12-month appreciation to 7 percent.

When asked about the dollar's recent strength, Zembei Mizoguchi, Japan's vice finance minister for international affairs, said, ``there was a big accumulation of dollar-short positions. The adjustment from that is still going on.''

The Bank of Japan, at the behest of the Ministry of Finance, sold 10.5 trillion yen ($95.3 billion) during the two months ended Feb. 25, more than half the record annual amount spent last year, to protect earnings of exporters.

Japan's economy grew at an annual rate of 7 percent in the fourth quarter, compared with a 4.1 percent pace in the U.S. The Nikkei 225 Stock Average has rallied 7 percent this year, versus a 3.5 percent gain for the Standard & Poor's 500 Index.

Demand for Stocks

Overseas investors were net buyers of Japanese stocks for seven of the eight weeks tracked so far this year, the Ministry of Finance said. Goldman, Sachs & Co. yesterday recommended clients buy the yen against the dollar because it expects the world's second-largest economy to attract more investment than the U.S.

``There continues to be strong equity flow into Japan,'' Richard Yetsenga, currency strategist in Sydney at Deutsche Bank AG, said in an interview. ``With dollar-yen at these levels, there's less pressure on Japanese authorities to intervene.''

The yen was at 110.18 per dollar, versus 110.04 yesterday.

Italy wants the European Central Bank to cut rates today to keep an appreciating currency from stalling a recovery in Europe's fourth-biggest economy, Deputy Finance Minister Gianfranco Micciche said yesterday. The common currency has risen about 12 percent against the dollar in the past year.

``We didn't ask for a reduction, but it's clear we're hoping for it,'' Micciche said in an interview in Rome. ``It would be positive.''

Europe `Suffering'

German Chancellor Gerhard Schroeder and French Prime Minister Jean-Pierre Raffarin are putting pressure on the ECB to cut rates as inflation eases and unemployment blunts consumer spending. The central bank's decision is scheduled for 1:45 p.m. Frankfurt time, and ECB President Jean-Claude Trichet will hold a press conference 45 minutes later.

``The euro-block is suffering the slowest economic recovery'' compared with the U.S. and Japan, said Minoru Shioiri, foreign exchange manager in Tokyo at Mitsubishi Securities Co., a unit of Japan's second-largest lender. ``It may not be this time, but the ECB is likely to cut interest rates at some point, guiding the euro lower.''

The dollar has risen in part on expectations the pace of U.S. job growth is accelerating, which may hasten a Federal Reserve interest rate increase. The Labor Department is expected to report Friday that 130,000 jobs were created in February, more than in any month since November 2000, according to the median forecast of 63 economists surveyed by Bloomberg News.

Employment is ``growing slowly,'' the Fed's `beige book' survey of the economy said yesterday.

``We've probably come very close to seeing a pick up in the U.S. job market,'' said Yusuke Fujisawa, a portfolio manager at Dai-Ichi Kangyo Asset Management, which oversees the equivalent of $17 billion for Japan's biggest bank. ``Good employment data will boost expectations for a rate increase,'' and could send the dollar above $1.2 per euro tomorrow.

In other trading, the dollar rose to 1.2947 Swiss francs, from 1.2922. The British pound fell to $1.8296, from $1.8302. The Bank of England is expected to leave its target rate at 4 percent at a meeting today.

To contact the reporters on this story: Taizo Hirose in Tokyo at hirose2@bloomberg.net; Yumi Kuramitsu in Hong Kong at ykuramitsu@bloomberg.net

Last Updated: March 4, 2004 01:31 EST