The euro powered above $0.98 for the first time in more than two years on Monday as doubts over the appeal of U.S. assets and the strength of the U.S. recovery accelerated the dollar's losses across the board.

Even a bout of dollar-buying for yen by the Bank of Japan failed to halt downward momentum in the U.S. currency, which also hit 2-1/2 year lows against the Swiss franc and 17-month lows against sterling.

The dollar has shed six cents against the euro in the last month alone, bringing parity into view. Its fall has been exacerbated in the last three trading sessions by steep losses in U.S. stocks and a widening U.S. current account deficit.

"People holding long dollar positions in the expectation the euro's gains would end have found themselves so under water that they've had to take those positions off and jump on the bandwagon," Russell Jones, head of foreign exchange research at Lehman Brothers.

By 1152 GMT the euro was three quarters of a percent above Friday's New York close, at $0.9780, after climbing to an intra-day high of $0.9816. The dollar dipped below 1.50 Swiss francs for first time since October 1999.

Concern that the greenback's slide could harm Japan's export competitiveness prompted Japanese authorities to wade into the foreign exchange market to sell yen for dollars for the first time in three weeks.

Japan's action lifted the dollar more than a yen in Asian trade but it slipped back to 121.20 yen in Europe, just half a yen above seven-month lows set on Friday.

"Japanese authorities were forced to react to the strength of Friday's move," said Shahab Jalinoos, currency strategist at UBS Warburg.

"Global dollar weakness is a serious threat to Japan's economy but dollar sentiment is unlikely to improve until U.S. asset markets pick up."

The euro also gained against the yen, climbing above 119 yen at one point before settling back to stand nearly one percent higher on the day at 118.60.

DOLLAR DECLINE STEEPENS

Analysts say the euro could reach one-to-one with the dollar within weeks, or even days, as the break of key chart levels accelerated the greenback's decline and triggered a wave of automatic sell orders.

Comments from U.S. Treasury Secretary Paul O'Neill on Sunday playing down fears about the dollar added to a long list of black marks against the greenback.

"The market decides what the right number is," O'Neill told U.S. television, feeding impressions among some in the market that the only authorities likely to act to curb dollar weakness were Japanese.

"O'Neill's comments have been taken by some as a failure to restate the strong dollar policy," said Adrian Schmidt, senior currency strategist at RBS Financial Markets.

Traders said the dollar was still suffering from concerns over the growing U.S. current account deficit, after data last week showed the deficit, which is the broadest measure of trade with foreign countries, hit a record $112.5 billion in the first quarter of this year.

The shortfall needs to be offset by foreign inflows into U.S. assets to prevent the dollar coming under downward pressure but analysts said weak U.S. asset markets meant the dollar would have difficulty attracting enough capital to finance that gap.

The dollar lost more than two percent against both the euro and the yen last week, registering its most dismal performance since August 2001, according to Reuters data.

"So far, market sentiment remains overwhelmingly dollar negative but the euro's gains may start to slow the closer we get to parity," said Neal Kimberley, manager at Bank of Tokyo Mitsubishi.

Analysts say the euro's rise is still predominantly driven by dollar bearishness.

But the single currency got some supportive news when preliminary German states' consumer prices data indicated inflation in the euro zone's largest economy continued to ease in June.

Analysts said slowing inflation and the rising euro could allow to the European Central Bank to hold off raising interest rates until stronger signs of economic recovery emerge.