The euro sank to a more than one-year low against the dollar and hit an 11-year low versus the yen on Thursday as strong U.S. data and nagging European debt fears underscored diverging expectations for some of the world's biggest economies.
The data helped stocks in the United States end the day higher, while shares in Europe closed lower.
U.S. private employers added 325,000 jobs in December, more than double what economists had expected, according to an industry report, though economists cautioned the number may have been boosted by seasonal factors. In addition, the government said new U.S. claims for unemployment benefits fell by 15,000 last week.
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 $1.2768, 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 levels last seen in December 2000, before trading at 98.72.
In contrast to Europe, where investors are worried about how banks will repair damaged balance sheets, financial shares helped lift U.S. stock indexes.
While you do have the European issues, the U.S. banks do have some offsets, said John Manley, the New York-based chief equity strategist at Wells Fargo Funds Management. There's signs of potential stability in the housing market and U.S. banks are probably being helped by that.
The Standard & Poor's 500 Index <.SPX> closed up 0.29 percent, and the Nasdaq Composite Index <.IXIC> gained 0.81 percent for the day. The Dow Jones industrial average <.DJI> edged down 0.02 percent after a choppy session.
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.
Auctions of French and German government debt this week failed to soothe 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 euro-zone economies seen most at risk from a 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.
Trading in shares of 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.
Brent crude futures fell, retreating after seesawing for much of the session as rising U.S. stockpiles and the dollar's strength offset worries about Iran. Brent February crude fell 96 cents, or 0.84 percent, to settle at $112.74 a barrel.
(Additional reporting by Gertrude; Chavez-Dreyfuss and Rodrigo Campos; Editing by Kenneth Barry and Leslie Adler)