LONDON: The euro slumped to a 22-month dollar low on Thursday on growing evidence of an economic slowdown and as an EU summit failed to reassure investors over Greece's future in the eurozone, dealers said.
However, the region's main stock markets held in positive territory as dealers said that a raft of negative economic data was already priced in.
In morning foreign exchange deals, the European single currency dived to $1.2516, hitting a low point last seen in July 2010. It later stood at $1.2544, compared with $1.2582 in New York late Wednesday.
In stocks trade, London's benchmark FTSE 100 index climbed 0.59 percent to 5,297.29 points, despite news of a worse-than-expected contraction in British economic growth in the first quarter.
Elsewhere, Frankfurt's DAX 30 added 0.13 percent to 6,293.81 points, as investors shrugged off news that business confidence in Germany dropped to a six-month low in May.
The Paris CAC 40 won 0.38 percent to 3,014.68 points, despite data showing that the decline in French manufacturing activity accelerated in May.
"Nothing in the data released this morning suggests that economic conditions in the UK and Europe are easing against a backdrop of policy paralysis across Europe," CMC Markets analyst Michael Hewson told AFP.
"Markets are rallying today -- but that surely reflects the fact that a lot of the data is pretty much priced in.
"Whichever way you like at it, unless policymakers come up with radical new solutions with respect to the crisis they will soon be faced with the prospect of delivering closer fiscal integration or overseeing the breakup of the euro."
EU leaders pledged support for Greece at an informal Brussels summit on Wednesday, but analysts said the meeting highlighted divisions between France and Germany on dealing with the region's ongoing sovereign debt crisis.
Fears remain that the crisis, which has already resulted in bailouts for Ireland, Greece and Portugal, could now potentially spread to Spain and Italy.
The yield on 10-year German bonds hit a new record low level as investors sought refuge in the safe-haven assets as concerns about the potential departure of Athens from the eurozone.
The rate of return for investors on 10-year German bonds on the secondary market fell to 1.358 percent from 1.383 percent at Wednesday's close.
"This morning's data has underpinned the economic slowdown which appears to be tightening its grip across the region and increasing the force of the debt crisis," said Rabobank analyst Jane Foley.
"If Greece does exit (the eurozone)... the level of contagion, while still difficult to estimate, may still be ruinous for" the euro.
"If Greece stays within the system, it will remain a source of fiscal and potentially political shockwaves for the foreseeable future.
"Either way, concerns about the future of the Spanish banking system will continue to pose an independent threat to the coherence of the eurozone," she added.
Business confidence in Germany dropped unexpectedly sharply in May, as pessimism grew due to the resurgence of the long-running the eurozone debt crisis, data showed on Thursday.
The Ifo economic institute's closely watched business climate index dropped to 106.9 points in May from 109.9 points in April, even though analysts had been expecting only a very modest decline in the index this month.
Across in France, the decline in manufacturing activity accelerated in May with a closely watched index of activity based on a survey hitting a three-year low, Markit market research firm said.
The PMI index for France fell to 44.7 points in May from 45.9 points in April, the lowest level for 37 months, according to an initial calculation.
The PMI manufacturing index, based on surveys of business purchasing managers, is watched as an important leading indicator of performance of the economy and a reading below 50 is considered to point to shrinking activity.
In Britain, official data showed that the economy's recession was deeper than previously thought.
Gross domestic product fell 0.3 percent between January and March, which was worse than the prior estimate for a 0.2-percent contraction.
The British economy has now returned to a technical recession, defined as two successive quarters of contraction, after shrinking by 0.3 percent in the final three months of 2011.
Chinese manufacturing activity contracted in May for the seventh successive month as exports deteriorated, with the preliminary purchasing managers index falling to 48.7 from 49.3 in April, British banking giant HSBC said Thursday.
A reading below 50 suggests contraction.
Asian markets meanwhile closed mostly lower on Thursday. Over on Wall Street on Wednesday US stocks finished mixed with a late rally paring losses prompted by increased fears of a Greek exit and disappointing earnings from Dell.