BERLIN After plunging to record lows only a matter of months ago, the euro appears set to mark January 1, the second anniversary of its launch, on much firmer ground.

With the American economy's marathon growth run showing signs of fatigue and Europe continuing to turn in sturdy growth rates, the euro has been edging forward, leading analysts to predict a more prosperous year for the European common currency.

Economists believe that the bleak days of September when the euro dropped below 84 cents are now behind the single currency, which has staged a year-end recovery, trading at around 92 cents in the run up to its second birthday next month.

As a result, economists believe that the euro, which has lost more than 25 percent of its value against the dollar, will gradually claw its way back to parity with the greenback during 2001 and could be back at about 41.04 by the end of next year.

"By any yardstick or definition the euro is dramatically undervalued," said Peter Pietsch, economist with Commerzbank AG.

"We have seen the euro strengthening recently and we believe that this trend will continue," Pietsch said.

The Head of the European Bankers' Association Working Group on the euro, Martin Huefner this month estimated the euro's fair value at between $1.10 and $1.15.

Also helping to create a more favorable backdrop for the euro's birthday celebrations have been signs of a peak in the massive outflow of capital from the 11-member eurozone and across the Atlantic to what were once wall street's fast-paced markets.

The current year is also one year that European Central Bank (ECB) President Wim Duisenberg will be happy to see behind him with the ECB chief coming under enormous pressure as the euro plunged this year.

The euro's slide was despite the ECB hiking its benchmark refinancing rate by 225 basis points over the last year with a series of ECB market interventions to support the ailing currency eventually helping to put a floor under the new European money.

But more to the point, Duisenberg has faced a round of criticism over his handling of common currency's plight during the two years that the ECB has been chief custodian of monetary policy in the eurozone and his tendency to be somewhat too forthcoming in his public comments.

This culminated in a humiliating press conference in October when Duisenberg faced a barrage of questions about whether he intended to resign after his candid comments on the prospects of another round of ECB intervention to prop up the euro.

After been essentially hand picked by Germany as the man they wanted to see in charge of the ECB, Duisenberg has also found himself the subject of criticism by his German backs, including concerns that he was focusing too much on economic growth in promoting the euro's virtues.

In the wake of his comments about intervention, both the president of Germany's influential Central Bank, the Bundesbank, Ernest Welteke and the chief economist of Germany's biggest bank, Deutsche Bank AG, Norbert Walter, publicly rebuked Duisenberg.

The key question now facing the Duisenberg and the 17 members of the ECB's rate-setting council is whether to move again to try to squeeze inflationary pressures out of the eurozone by tightening monetary policy again.

The euro's recent rise is likely to ease some of the pressure on Duisenberg and his colleagues as they weigh up whether to respond to recent signs of a resurgence in eurozone core inflation.

But hiking up rates again raises the risk that a tighter monetary policy could accentuate the moderate economic show down currently underway.

Data released this month showed growth in the eurozone economy slipping back a gear from the strong year-on-year growth rates of about 3.7 percent it posted during the middle of the year to 3.4 percent in the third quarter.

That said, the euro's weakness has been a critical factor in helping to underpin growth with exports chalking up an annual rate of 11.7 percent in the three months to the end of September.

Some economists, however, expect that the current slow-down underway in the U.S. might prove to be only relatively temporary which as a result could eventually threaten the renewed hopes of the euro emerging as a challenge to the dollar domination of world markets.

(DPA)