LONDON, May 28: The dollar recovered some lost ground against the euro on Wednesday after much better-than-expected US durable goods data offset the impact of higher German inflation, dealers said.

They said the euro had firmed up earlier in the day after a spike in German inflation figures suggested that the European Central Bank will keep its interest rates at least on hold for some time to combat rising prices.

That worked in favour of the euro until early afternoon when US durable goods orders showed a much smaller-than-expected drop of 0.5 per cent in April, taken to mean that the troubled US economy still has life in it despite the subprime home loan crisis.

“This was a decent report and seems to indicate that the economy has far from collapsed,” said Joel Naroff of Naroff Economic Advisors.

The data are volatile however and the dollar’s gains were modest.

In late European trade, the euro was at $1.5628, down from $1.5715 early in the day and $1.5686 in New York late on Tuesday.

Against the Japanese currency, the dollar firmed to 104.72 yen from 104.24.

German inflation accelerated sharply in May, adding to worries about Europe’s largest economy and further dashing hopes of a cut in eurozone interest rates.

According to an official projection based on data from six of Germany’s 16 states, consumer prices rose 3.0 per cent year-on-year, up from 2.4 per cent in April and well above the ECB’s target of just below 2.0 per cent.

In London trade late Wednesday, the euro changed hands at $1.5628 against $1.5686 late on Tuesday, 163.66 yen (163.53), 0.7892 pounds (0.7936) and 1.6227 Swiss francs (1.6218).

The dollar stood at 104.72 yen (104.24) and 1.0387 Swiss francs (1.0337).

The pound was at $1.9806 ($1.9763).—AFP