NEW YORK (Dow Jones)--The euro advanced against the dollar Friday, rebounding from 14-month lows, on hopes that a Greek bailout package would finally deliver aid to the cash-strapped nation.

Optimism rose when the German parliament gave the go-ahead to that country's contribution of up to EUR22.4 billion to the EUR110 billion bailout plan for Greece. With several high-level meetings planned for the weekend to address the euro-zone debt crisis and financial markets still jittery, the euro traded in choppy waters Friday.

Talk of a liquidity lifeline to stressed euro-zone banks also lent support to the common currency. The European Central Bank wouldn't comment on whether it was considering a special credit line for banks in Europe, where interbank borrowing rates have increased as fears of sovereign-debt contagion have roiled markets.

Despite the euro's 0.75% gain versus the dollar Friday, it suffered its worst week since the height of the global crisis in October 2008. The common currency was down about 4.4% from last Friday and down about 11% since the end of 2009.

"Clearly, the damage wrought this week to investor confidence has left players skittish, with little appetite to take on fresh positions heading into the weekend," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

The U.K. pound plummeted to a one-year low in European trading as it became evident that no clear winner would emerge from the country's general election. However, the possibility of discussions between the Conservative and Liberal Democrat parties over forming a government helped sterling to pare its losses to trade around $1.48 in afternoon New York trading after dropping as far as $1.4477.

Friday afternoon, the euro was at $1.2732 from $1.2599 late Thursday, according to EBS via CQG. The dollar was at Y91.70 from Y89.92, while the euro was at Y116.71 from Y113.26. The U.K. pound was at $1.4800 from $1.4832. The dollar was at CHF1.1092 from CHF1.1123.

The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 84.494 from 84.910.

Following Thursday's extreme swings in financial markets, currency trade was volatile as investors reacted to a mixture of headline news, economic reports and market chatter. Greece stayed in focus on the currency front, with sentiment improving but doubts remaining. Investors still worry about details of a bailout package and the spread of Greece's problems to other euro-zone countries with high deficits and debt, such as Portugal. Market sentiment remains fragile amid worries about the health of the European banking system.

Even if Greece gets cash in hand and stressed euro-zone banks get an ECB lifeline, the longer-term picture for the common currency still is bleak, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J.

"This has the potential to get a lot worse before it gets better," he said, noting the euro dropped 6.4% against the dollar this week from its high to low--just a hair from its 6.8% drop in October 2008 at the height of the global financial crisis.

"The big move [in the euro] came following the ECB sitting on their hands," he said. "If they continue to pursue that route and say everything is under control and things are fine," a sovereign-debt crisis could spread into the private sector and drag the entire global economy into crisis, Dolan said.

The better-than-expected U.S. jobs report Friday "should help remind market players that the U.S. economy is picking up steam," said BNY Mellon's Woolfolk said. "This Greece-debt crisis, which has spilled over into global financial markets, is not going to derail the global recovery." Currencies closely tied to global growth, such as the New Zealand dollar and Brazilian real, strengthened against the U.S. currency.



To see the euro's moves against the dollar, please see:

http://dowjoneswebservices.com/chart/view/3935



Investors again increased their bets against the euro to fresh record levels. Net speculative bets--called shorts--against the euro increased to $16.8 billion in the week ended Tuesday from $14.7 billion in the previous week, according to an analysis by Scotia Capital of the weekly Commitments of Traders report released by the Commodity Futures Trading Commission late Friday afternoon. The data cover only a small slice of the foreign-exchange market and don't include adjustments to positions made in the past three days.

With the ICE Dollar Index weakening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was up 0.51% from late Thursday, while its PowerShares U.S. Dollar Index Bullish was down 0.45%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.



-By Bradley Davis, Dow Jones Newswires; 212-416-2654; bradley.davis@dowjones.com

(Andrea Thomas in Berlin and Geoffrey T. Smith and Terence Roth in London contributed to this article.)


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