The euro slumped to its lowest in more than a year against the dollar and in 11 years versus the yen on Thursday as robust U.S. data and nagging European debt fears underscored divergent expectations for some of the world's biggest economies.
The data helped stocks in the United States advance, even as shares in Europe closed lower.
U.S. private employers added 325,000 jobs in December, easily beating expectations, though economists cautioned the number may have been boosted by seasonal factors. In addition, new U.S. claims for unemployment benefits fell by 15,000 last week, according to reports on Thursday.
The pace of growth in the dominant U.S. services sector also picked up slightly in December, according to an industry report.
The data seemed to be having a positive impact on the U.S. dollar, said Boris Schlossberg, director of research at GFT Forex in Jersey City, New Jersey. For the last couple of weeks, euro-dollar has decoupled from the risk appetite theme, and this reflects the view that the euro zone is the hobbled region, while the U.S. is the growth economy.
The euro fell as low as $1.2775, its weakest level since September 2010. The single currency last traded at $1.2786.
Depending on how bad things get in Europe, certainly $1.25 is a pretty reachable near-term target, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
If you start to consider the potential for a mass downgrade in Europe or a worst-case scenario on disorderly defaults of a bank or a sovereign, it could be much lower, he added.
Against the Japanese currency, the euro fell as low as 98.45 yen, around December 2000 levels, before trading at 98.66.
In contrast to Europe, where investors are worried about how banks will repair damaged balance sheets, financial shares helped to lift U.S. stock indexes.
The idea from the data is that our economy is picking up. So for banks, they'll start to see some loan growth, which will feed into their profits, said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia.
That's different than concerns about capital and stability in Europe, which the region is still dealing with, said Dunigan, who helps oversee $105 billion.
The Standard & Poor's 500 Index <.SPX> moved up 0.18 percent and the Nasdaq Composite Index <.IXIC> advanced 0.68 percent. The Dow Jones industrial average <.DJI> seesawed, dipping 0.08 percent despite time in positive territory.
EURO STRESS TO CONTINUE
Analysts expect the euro to stay under pressure this year, particularly as banks and governments see hundreds of billions of euros' worth of bonds maturing in the first quarter.
Already, auctions of French and German debt this week have failed to allay market worries.
Markets have also been bracing for France to lose its top-notch credit rating after agency Standard & Poor's warned in early December of a mass downgrade of euro zone states due to concerns about the bloc's two-year old debt crisis.
A sterner test of investor sentiment toward Europe is expected next week when Spain and Italy - the two big economies seen as most at risk from the crisis that has already dragged down Greece, Ireland and Portugal - are due to issue bonds.
Stocks in Europe struggled on Thursday in the face of those fears.
Shares in Italy's top bank, Unicredit
The FTSEurofirst 300 <.FTEU3> index of top European shares, closed 0.79 percent lower at 1013.39 points. The European banking sector dragged again, with the STOXX Europe 600 Banks index <.SX7P> down 3.24 percent.
(Additional reporting by Gertrude; Chavez-Dreyfuss and Ryan Vlastelica; Editing by Kenneth Barry)