The dollar recovered against the euro late on Wednesday after falling sharply on news that US consumer prices plunged by a record 1.0 percent in October amid an accelerating global financial crisis.

In late London trading, the European single currency was at 1.2596 dollars -- after jumping as high as 1.2748 dollar and compared with 1.2621 dollars in New York late on Tuesday.

Against the Japanese currency, the dollar fell to 96.86 yen from 96.89 yen on Tuesday.

`We expect the dollar to continue to rally as increasing evidence of economic slowdown in emerging economies fuels dollar-supportive repatriation flows,` wrote analyst Lee Hardman of the Bank of Tokyo-Mitsubishi.

The US consumer price index (CPI) plunged 1.0 percent in October -- the steepest one-month fall since the data was first published in 1947.

Slowing inflation gives the US Federal Reserve more room to lower US interest rates even further to try to ward off a deep recession, analysts said.

The CPI downturn followed little change in prices in September and August and was led by oil prices plummeting from their July record highs.

`The collapse in commodity prices is having a dramatic effect on inflation in the United States,` said Paul Ashworth, senior US economist at the Capital Economics consultancy in London.

Core CPI, excluding food and energy prices, slipped 0.1 percent.

`The big surprise in October`s CPI figures was the 0.1-percent month-on-month decline in core prices,` Ashworth said.

`That decline seems to be due to the impact of the economic downturn and the first pass-through effects of the commodity price slide.`

For the 12 months to October, headline US inflation ran at 3.7 percent, slowing from a 4.9 percent annual rate in September, while core CPI was 2.2 percent.

Last month, the US Federal Reserve slashed its key lending rate by a half-point to 1.0 percent, matching a historic low for US borrowing costs, in the latest action to ease a credit crisis that is strangling the US economy.

Slower inflation gives the Fed more room to lower US interest rates even further to try to ward off a deep recession.

Meanwhile, markets were closely watching developments in the car sector as the heads of the Big Three US automakers -- General Motors, Ford and Chrysler -- appeal to Congress for loans to prevent their industry from collapsing.

Treasury Secretary Henry Paulson had on Tuesday indicated unwillingness to allocate funds from a financial sector bailout to the manufacturing sector.

`The troubled US automotive industry poses a large economic and potentially systemic risk, so a lack of a rescue plan is bad news for risky assets in the near term,` Barclays Capital analysts said in a research note on Wednesday.

Elsewhere, the British pound was steady on news that Bank of England policymakers voted 9-0 to slash British interest rates by a third to 3.00 percent earlier this month, according to minutes of their meeting.

The BoE had on November 6 slashed its key lending rate from 4.5 percent to the lowest level in more than half a century, a sign according to economists of a deep recession ahead for Britain.

In foreign exchange trade on Wednesday, the euro changed hands at 1.2596 dollars against 1.2621 dollars late on Tuesday, at 122.75 yen (122.32), 0.8369 pounds (0.8432) and 1.5263 Swiss francs (1.5181).

The dollar stood at 96.86 yen (96.89) and 1.2043 Swiss francs (1.2026).

The pound was at 1.5144 dollars (1.4963).

On the London Bullion Market, the price of gold rose to 762.44 dollars an ounce from 738 dollars late on Tuesday.