Dollar up vs. euro, pound

NEW YORK (AP) - The dollar strengthened against the euro and British pound on Friday after new data showed the U.S. economy grew at a solid clip during the second quarter, its best performance in more than a year.

The 13-nation currency fell as low as $1.3628 before climbing back to $1.3649 in late New York trading, still below its level of $1.3718 late Thursday.

The dollar also rebounded against the British pound, which dropped to $2.0270 from $2.0462 late Thursday. Despite the slip, the U.S. currency has fallen against the pound to levels last seen in 1981.

The U.S. Commerce Department reported Friday that the economy grew at a 3.4 percent pace in the second quarter, with revived business spending boosting the new growth.

An inflation gauge closely watched by the Federal Reserve showed "core" prices -- excluding food and energy -- rose at a rate of just 1.4 percent in the second quarter. That was down sharply from a 2.4 percent pace in the first quarter and marked the smallest increase in four years.

Fed Chairman Ben Bernanke has said the biggest threat to the economy is that inflation will fail to moderate as expected.

Higher interest rates, a weapon against inflation, can support a currency by offering investors better returns on investments denominated in that currency.

Individuals, however, tightened their belts as they coped with high gasoline prices and the ill effects of the housing slump, the report showed. The sour housing market continued to weigh on national economic activity in the spring, but not nearly as much as it had in previous quarters.

The dollar fell further against the Japanese yen, dropping as low as 118.40 before edging up to 118.78 on Friday, still lower than 119.46 late Thursday.

Fears about the fallout from the subprime loan problem in the United States have piled on top of a narrowing interest rate gap between the U.S. and Europe to help push the dollar down.

The U.S. Federal Reserve is holding its main rate steady at 5.25 percent, while the European Central Bank and the Bank of England are expected to further raise rates.

In other trading, the dollar bought 1.2086 Swiss francs, down from 1.2095 late Thursday, and 1.0610 Canadian dollars, up from 1.0492.