Denis Staunton,

European Correspondent

The euro fell yesterday to its lowest level against the dollar for three weeks after the chief economist of the European Central Bank (ECB), Prof Otmar Issing, expressed concern about the speed of the European currency's recent rise.

"We are not indifferent about the foreign exchange rate but worried over the large volatility," he said.

By yesterday evening, the euro had fallen to $1.2378, more than five cents lower than Monday's record highs.

The euro also fell against sterling and the yen.

Prof Issing's remarks, which followed similar statements from other senior ECB figures, raised suspicions in the markets that the ECB could intervene or cut interest rates to halt the euro's rise.

"As the ECB president recently said, we're not indifferent to the big swings in the euro. We're actually rather concerned," said Prof Issing.

The Belgian and Portuguese central bank presidents also expressed worries about the euro's rise and European finance ministers are expected to seek a joint statement on the exchange rate when the G-7 meets in Florida next month.

Most analysts believe that the ECB will be reluctant to cut interest rates in response to exchange rate developments but Washington's apparent indifference to the dollar's weakness could make a concerted intervention in the market difficult.

Euro-zone finance ministers are expected to discuss exchange rate developments when they meet on Monday under the chairmanship of the Minister for Finance, Mr McCreevy.

Meanwhile, European Union finance ministers will next week consider who should replace Mr Eugenio Domingo Solans as a member of the ECB's executive board.

Mr Solans's successor is expected to come from one of the four states - Belgium, Luxembourg, Portugal and Ireland - which have not served on the board yet.

Mr McCreevy is unlikely to nominate an Irish candidate, however, because such a move could be viewed as inconsistent with his role as an impartial president of Ecofin, the Council of Ministers' formation where finance ministers meet.

Favourite for the job is the Belgian economist Prof Paul de Grauwe, who has been passed over twice for appointments to the six-person executive.

Prof de Grauwe has been an outspoken advocate for a more flexible approach to monetary policy, a stance that does not endear him to more hawkish finance ministers.

Euro-zone finance ministers are expected to discuss the European Commission's legal challenge over the Stability and Growth Pact when they meet on Monday evening.

Monday's meeting will also allow finance ministers to tell Mr McCreevy if they share his view that the time is not yet ripe for a major reform of the pact.