Investors drove the European single currency more than 1 per cent higher against the dollar yesterday after EU finance ministers failed to signal action to rein in the euro, which has risen against the dollar by 20 per cent in the last year.

The euro rose to $1.2592 against the dollar as the markets interpreted a communique from European Union finance ministers late on Monday night as too timid to cool the currency.

Mr McCreevy, the Minister for Finance and chairman of the euro zone meeting, refused to respond to suggestions that the statement had been too timid.

But one EU official said ministers, concerned that the euro's rise might stifle the fragile eurozone upturn, restrained their comments in case they needed to use more powerful language at a later date.

Mr Otmar Issing, the European Central Bank's chief economist, tried to take the steam out of the currency yesterday. Speaking before the European parliament's economic and monetary affairs committee he warned against "excessive exchange rate volatility", but his comments had little effect on the markets.

Following on from yesterday's Ecofin meeting Mr McCreevy will seek to reconcile conflicting demands over the EU's budget at an informal meeting of EU finance ministers in Punchestown, Co Kildare, in April.

The EU's biggest net contributor countries yesterday rejected a call from the European Commission for a bigger budget to finance an ambitious programme to boost European competitiveness.

Germany's finance minister, Mr Hans Eichel, insisted yesterday that the EU budget must remain below 1 per cent of GDP and dismissed the Commission's demand for more funds.

"Such a proposal can only lead to the impression that citizens should pay more, and that is exactly what we do not want. Europe and the European budget should meet the same strict requirements as national budgets," he said.

Mr McCreevy warned that negotiations over the EU's next seven-year budget were likely to be long and difficult and that agreement was unlikely before 2005 but the Minister promised that the Irish Presidency would adopt a constructive approach to the issue.

"We intend to set out the roadmap as to how the discussions will take place," he said.

Austria's Finance Minister, Mr Karl-Heinz Grasser, called the plans to increase spending "completely unacceptable", as they would lead to more than a doubling of Vienna's net contribution.

France's request for lower taxes on restaurants and higher excise on tobacco yielded littlebeyond commitments to look further into the issues.

Mr Eichel reiterated Germany's opposition to the French request on restaurants, for whichunanimity is required.

(additional reporting Financial Times Service)