Growth in the euro zone and Japan faltered in the third quarter as export demand weakened. New figures yesterday showed euro zone growth at its slowest for more than a year, increasing speculation that the European Central Bank will not increase interest rates for some months yet.

Total euro zone output rose by 0.3 per cent from the second quarter for an annual rise of 1.9 per cent, down from a quarterly increase of 0.5 per cent and a yearly rise of 2.0 per cent in the second quarter.

In Japan, gross domestic product (GDP) grew a meagre 0.1 per cent from the previous quarter in real, price-adjusted terms, according to government data yesterday.

That was much weaker than the 0.5 per cent growth forecast by economists.

The figure translated into an annualised rate of 0.3 per cent, well below US growth of 3.7 per cent in the same period and a far cry from Japan's decade-high pace of more than 6 per cent in the final quarter of last year and the first quarter of 2004.

The weakness of the US dollar is contributing to slower growth in other major economies.

The dollar has fallen around 20 per cent against a basket of currencies since the beginning of 2003.

This has afforded the US economy some protection by making it easier for its producers to compete on global markets, but has made life more difficult for countries that rely on exporting to the world's largest economy.

The dollar fell two-thirds of a per cent against the yen to within sight of seven-month lows yesterday and edged towards recent record lows against the euro. It has lost five per cent against the yen and six per cent against the euro since early October.

The euro zone's problems are particularly acute, with the euro having taken the brunt of the dollar's adjustment downwards. The euro reached a record high against the dollar at $1.3005 on Wednesday and yesterday it was trading just below $1.30.

The US currency appeared to get little support from a better-than-expected preliminary US consumer sentiment index, as measured by the University of Michigan.

This rose to 95.5 in November from 91.7 in October. The November reading beat the market's consensus expectation for a reading of 93.0.

European Central Bank governor, Mr Jean-Claude Trichet, has repeatedly described the moves as "brutal" but the ECB's line is that it is the volatility to which it objects and it has no specific target in mind.

But analysts warn that the euro-zone economy is too fragile to weather a further significant appreciation in the euro's dollar value and that at some point - $1.35-$1.40 - the ECB would have to intervene on the foreign exchanges to cap the currency.

The damage to exports has become increasingly evident as growth in the euro zone's two largest economies has weakened.

Germany's economic growth slowed to just 0.1 per cent in the third quarter while French economic growth also fell to 0.1 per cent expansion, its weakest performance in over a year. - (Reuters)