LONDON, 12 August 2004 — The dollar drifted higher yesterday as markets took heart from the Federal Reserve’s upbeat assessment of the US economy.

The single European currency stood at 1.2212 dollars in late European trading, down from 1.2235 late on Tuesday in New York. The dollar traded at 111.67 yen against 111.26 on Tuesday.

The US currency benefited from Federal Reserve optimism over the US economy and a quarter-point rise in a key interest rate, the second since June 30, analysts said.

The Federal Reserve Open Market Committee on Tuesday hiked the federal funds target rate, which banks charge each other for overnight loans, to 1.50 percent from 1.25 percent.

The euro was changing hands at 1.2212 dollars from 1.2235 late on Tuesday in New York, 135.18 yen (136.14), 0.6687 pounds (0.6696) and 1.5409 Swiss francs (1.5443). The dollar stood at 110.67 yen (111.26) and 1.2614 Swiss francs (1.2619).

The pound was at 1.8273 dollars (1.8264), 202.20 yen (203.21) and 2.3051 Swiss francs (2.3050).

Stocks in the United States were lower yesterday after a disappointing forecast from technology bellwether Cisco Systems Inc., but the market pared some of its losses after oil prices fell.

US crude slumped more than $1 a barrel after Saudi Arabia, the world’s top oil exporter, said it had raised its output sharply over the past three months and vowed to raise supplies to meet any extra demand.

Cisco, the world’s largest maker of equipment that directs Internet and other network traffic, on Tuesday forecast sales for the current quarter that were short of Wall Street’s expectations.

Investors also fretted about Chief Executive John Chambers’ comments that Cisco’s business customers were more cautious about the outlook.

The technology-laced NASDAQ Composite Index sank 33.71 points, or 1.86 percent, to 1,774.99. The Dow Jones industrial average fell 44.54 points, or 0.45 percent, to 9,900.13. The broader Standard & Poor’s 500 Index dropped 6.81 points, or 0.63 percent, to 1,072.23.

The NASDAQ index gave back all of its gains from the previous session when stocks surged after the Federal Reserve said the economy, although stung by energy costs, was still poised for growth.