LONDON : The euro dropped against the dollar on Wednesday as economic data showed only a slight improvement in French business confidence, traders said.

In London trade, the European single currency fell to 1.3965 dollars from 1.3980 dollars late on Tuesday.

Against the Japanese currency, the dollar climbed to 95.43 yen from 94.95 yen late Tuesday.French consumer and business confidence edged up in May compared to April but remained well below levels seen before the economic crisis struck, data by the statistics body INSEE showed Wednesday.

The consumer confidence index rose to -40 in May from -41 in April, while the index measuring confidence among business leaders also improved to 72 in May from 71 a month earlier, INSEE said.The dollar was meanwhile also winning support against the euro and yen after a surprise surge in US consumer confidence and fresh signs of trouble in the eurozone economies.

Investor sentiment towards the US economy brightened after an unexpected rise in consumer confidence raised hopes the recession is easing.The Conference Board's consumer confidence index spiked to 54.9 in May from 40.8 in April, the highest level in eight months, data showed Tuesday.

"Markets remain optimistic overall," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.The dollar was also supported by concerns over the woes of German banks and a drop in eurozone factory orders, NAB Capital analyst John Kyriakopoulos said.

The London-based Daily Telegraph newspaper quoted Germany's chief financial regulator Jochen Sanio as saying that debt levels of banks would blow up "like a grenade" unless they participated in the government's bad bank plan.Traders were keeping a close watch on a series of US government bond auctions this week amid concerns about the worsening public finances.

They were also weighing news that Japan logged an unexpected trade surplus in April as its export slump continued to ease, boosting hopes the world's second largest economy may be nearing the end of its recession tunnel.

In London trade on Wednesday, the euro was changing hands at 1.3965 dollars against 1.3980 dollars late on Tuesday, at 133.25 yen (132.76), 0.8741 pounds (0.8778) and 1.5146 Swiss francs (1.5158).

The dollar stood at 95.43 yen (94.95) and 1.0847 Swiss francs (1.0839).

The pound was at 1.5975 dollars (1.5923).On the London Bullion Market, the price of gold increased to 949.50 dollars an ounce from 945 dollars an ounce late on Tuesday.