The dollar remained plagued by doubts about the economy and the Bush administration's commitment to its strong dollar policy yesterday, leaving the euro near three-month highs against the US currency.

The euro was at $0.8944 against the dollar by the middle of New York trade, off a high of $0.8960.

Growing speculation that the dollar may have ended its six-year bull run is unnerving overseas investors in US stocks and bonds, where a rising dollar exchange rate has long underwritten those assets for foreigners.

Since the mid 1990s, foreign investors have viewed dollar-denominated assets as a safe bet. Already, juicy returns on US assets from a then booming economy were enhanced by a steady grind higher in the value of the dollar, in a virtuous circle for overseas fund managers.

While the US economy was roaring ahead, a strong currency was seen as a benefit - helping to keep both inflation and interest rates low.

But the recent sharp slowdown in both the domestic and global economy has raised questions as to whether a strong dollar is still sustainable - or even appropriate.

"Any perception the dollar could crash would send overseas investors bailing out of US assets, creating a vicious downward spiral for the dollar," said Mr Steve Cleal, head of balanced funds at Morley Fund Management in London.

"US authorities may be happy to see the dollar drift lower to ease the pain of US manufacturers, but would want to avoid a lurch lower given the risk of capital outflows.

"The dollar has lagged the falls in the equity and bond markets this year and that divergence is being reduced now," said Mr Paul Meggyesi, senior economist at Deutsche Bank.

"Investors have begun to accept the slowdown in the US economy is deeply ingrained.

"Currency trading takes on a lot of momentum and that takes time to turn around," he added. "Patently, the dollar did overshoot and what we're seeing is a 'turnaround' phase."

Mr Michael Metcalfe, foreign exchange strategist with CrΘdit Agricole Indosuez in London, said: "The euro may have got a boost this week from increased chances of a rate cut from the ECB. But there is a generalised story of dollar weakness."

US producer price data yesterday showed very mild wholesale inflation, adding to the gloomy outlook for raw material prices.

It was the biggest drop in producer prices since August 1993, easily exceeding the consensus forecast from Wall Street economists for an easing of 0.3 per cent.