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. Last Updated: 07/27/2016

Euro-Zone Investment Booms as U.S. Suffers

FRANKFURT, Germany -- Net investment in the euro zone almost doubled in May from the previous month as investors poured their money into euro-zone assets, turning their backs on the United States and boosting the euro in the process.

European Central Bank data showed on Friday that combined net inflows of direct and portfolio investment to the euro zone surged to 37.1 billion euros ($36.5 billion) in May from 19.3 billion euros in April.

Portfolio investment in the region almost trebled to 32.0 billion euros in May from 11.5 billion in April, reflecting increasing preference for the euro zone as a secure investment destination.

Analysts said rising investment flows into the euro zone had helped boost the euro's exchange rate, which has risen by more than 12 percent against the dollar so far this year, breaking above parity earlier this month.

"This [investment inflows] is basically the reason behind the appreciation of the euro this year," said Jose Alzola, economist with Schroder Salomon Smith Barney in London.

ECB data show that the value of the euro averaged 3.5 percent more against the dollar in May, at $0.917, than April's $0.886 average. Its gain on a trade-weighted basis was a much more modest 1.6 percent in the course of that month.

Alzola said that the motivation for the switch to euro-zone assets had more to do with disappointment at U.S. corporate scandals than with a fresh conviction in the ability of the euro-zone economy to outperform its North American rival.

"Last year equity capital had been coming back to the euro zone but flows into fixed income, with investors looking for high yield corporate debt, were still very strong. Now, with what has been going on, people are fleeing that market."

The ECB said the euro zone saw net inflows of 5.1 billion euros in direct investment in May.

"On a cumulated basis, during the first five months of 2002, combined direct and portfolio investment recorded net outflows which were substantially lower (15.3 billion euros) than during the same period in 2001 (123.9 billion euros)," the ECB said in a statement.

The data also showed the current account returning to a slight surplus of 0.1 billion euros in May from a deficit of 5.8 billion euros in April.

The trade surplus widened to 9.2 billion euros in May from 8.2 billion in April.

 The U.S. dollar rose against other major currencies in European trading Friday. Gold prices fell.

The euro was quoted at $0.9873, down from $1.0006 Thursday.

Gold traded in London at $304.80 bid per troy ounce, down from $309.70 on Thursday. In Zurich, the bid price was $305.40, down from $309.60.

Silver traded in London at $4.71 bid per troy ounce, down from $4.82.