By William L. Watts and Sarah Turner, MarketWatch LONDON (MarketWatch) — The dollar traded mostly lower Friday, with the euro temporarily extending a gain on the greenback after a closely tracked gauge of German business sentiment rose to a record high. The dollar index (DXY 80.01, -0.17, -0.21%) , which measures the U.S. unit’s performance against a basket of six other currencies, stood at 80.043, down from 80.167 on Thursday. The euro (EURUSD 1.3263, +0.0032, +0.2418%) changed hands at $1.3262, up from $1.3217 in late North American action Thursday but well off an earlier intraday high at $1.3358. See real-time currencies quotes and tools. The single currency extended its rise after the Ifo Institute said its German business-climate index rose to post-unification high of 109.9 in December from 109.3 last month, exceeding forecasts for an uptick to 109.4. Earlier, the euro was buoyed after European Union leaders agreed to the outline of a plan for a permanent crisis fund, known as the European Stability Mechanism, that would replace the current rescue fund, known as the European Financial Stability Facility, when it expires in 2013. See more on outcome of EU’s Thursday meeting in Brussels. The decision was widely expected and effectively ratifies a plan laid out by EU finance ministers last month. See more on outcome of EU’s Thursday meeting in Brussels Strategists at Commerzbank in Frankfurt said the lack of any negative surprises allowed the euro to bounce back from losses posted Thursday. Similarly, a decision by Moody’s Investors Service to slash Ireland’s credit rating came as no surprise, they said. Economists noted, however, the inability of EU leaders to come up with any near-term measures designed to arrest rising borrowing costs across the periphery of the euro zone. Read more about the EU summit. “The announcement last night ... does little for Europe today,” said Brad Bechtel, managing director of Faros Trading in Stamford, Conn. “Yes, it does look like EU leaders have finally agreed on a ‘solution’ for addressing financial issues in the EU, but the structure is vague and the issue of haircuts was pushed for later.” The euro, meanwhile, again fell to an all-time low versus the Swiss franc (EURCHF 1.2757, -0.0015, -0.1174%) , changing hands in recent action at 1.2739 francs, a loss of 0.2% from Thursday. Hopes for the dollar While lower to close out the trading week, the dollar index has rebounded well from lows hit in early November. “Fiscal policy and stronger economic momentum have been the U.S. dollar drivers over the last six weeks,” said Royal Bank of Scotland strategists. The dollar “has responded to rising U.S. rates, and we expect stronger U.S. momentum and higher rates to support a more rapid U.S. dollar gain during the first half of 2011,” they said. BNP Paribas currency strategists cited “changing liquidity dynamics” as well as their view that the dollar will be “increasingly supported by signs of the U.S. recovery gaining momentum over the coming year.” “The best way to position for further positive surprises coming from the U.S. economy is via long U.S. dollar/Japanese yen strategies in our view,” they added. The greenback (USDYEN 83.9500, -0.0600, -0.0714%) bought ¥83.94 yen on Friday, down from ¥84.17 late Thursday.

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