By Ron Askew
Reuters
Wednesday, July 14, 1999; 6:43 a.m. EDT

The euro dropped nearly half a cent towards its life low just under $1.0110 after Horst Siebert a senior economic adviser to the German government said in a television interview that the currency could fall as low as $0.90.

But it then rallied when Siebert said his comment was not a serious forecast and added that he saw the euro rising as the European economy picks up and the U.S. weakens.

Asked in an interview with German television channel ZDF how much further the euro could fall, Siebert, a member of the government's economic advisory council known as the Five Wise Men said: "It can still go a bit further."

Asked to predict a level, Siebert said: "I don't want to mention figures but we could also have a relation of 0.90."

Euro/yen was holding above 123 after earlier falling close to its 122.53 lifetime low.

In Frankfurt, Germany's blue chip DAX index rallied one percent after dropping one percent on Tuesday.

The main gainer was telecoms group Mannesmann AG which gained 3.3 percent after it said it had withdrawn from the bidding for British mobile phone operator One2One.

"This relieves some potential pressure on Mannesmann's earnings this year," one trader said.

Mannesmann has already agreed this year to buy fixed line telecommunications operator Otelo Communications GmbH from RWE AG and Veba AG for 2.25 billion marks ($1.17 billion).

One2One is jointly-owned by Cable & Wireless and MediaOne group Inc. They were seeking 11 billion pounds ($17.08 billion) for the mobile phone company.

The Financial Times newspaper reported that One2One might now be floated.

In London, Cable & Wireless shares shed three percent as hopes of a multi-billion pounds sale of One2One faded.

But the main British share benchmark, the FTSE 100 index, was up 0.90 percent after a shaky start, helped by stronger oil stocks with support from firmer banks.

Index heavyweights BP Amoco and Shell Transport and Trading

rose 1.8 and 1.3 percent respectively as crude oil prices continued to rise.

Brent blend crude oil opened at new 20-month highs and was last up another 30 cents at $19.33 a barrel in London after overnight figures showing a sharp fall in U.S. stock levels confirmed a tightening supply picture.

In the banking sector, Bank of Scotland Plc rose 2.7 percent, while Lloyds TSB Group Plc rose 2.2 percent and Barclays Plc gained 2.8 percent.

Initially, British stocks struggled to make progress in the face of falling Hong Kong stocks and economic woes in Argentina. But a partial recovery in New York helped lift sentiment and British economic data came in positive.

Unemployment in Britain fell by a larger than expected 5,600 in June, setting a new 19-year low. At the same time, there was no evidence of inflationary pressures building. Average earnings growth decelerated to 4.3 percent in May.

Attention turned to key U.S. data which includes retail sales and producer price indices, due at 1230 GMT.

S&P 500 index futures were trading flat, giving an early indication that selling pressure in New York was fading.

In front of the data European traders across the markets were keeping activity to a minimum. The Bastille day holiday in France also helped to dampen activity.

European government bonds were a shade lower in thin early trade ahead of the U.S. data which dealers said was the main focus of the market.

The U.S. data, particularly on retail sales, will be closely watched as an indicator of the future direction of U.S. monetary policy ahead of next month's meeting of the Federal Reserve's Open Market Committee.