The euro dropped against the dollar on Wednesday as US consumer confidence data boosted the greenback and fresh signs of pain in eurozone economies hurt the single currency, traders said.

French consumer and business confidence edged up in May compared with April but remained well below levels seen before the economic crisis struck, data by the statistics body INSEE showed.

A surprise jump in US consumer confidence raised sentiment on stock markets, meanwhile, boosting the dollar against the euro and the yen.

"The key event, especially for equity markets, was the confidence data," said analysts at Barclays Capital.

"It was a strong release -- especially the forward-looking elements -- and adds to the evidence that the risks to growth this year lie to the upside."

In late London trade, the European single currency fell to 1.3916 dollars from 1.3980 dollars reached late on Tuesday.

Against the Japanese currency, the dollar climbed to 95.16 yen from 94.95 yen late Tuesday.

The French 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.

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 pound strengthened to 1.5996 dollars from 1.5923 dollar on Tuesday. "The pound is benefitting from being the 'least ugly' at the moment rather than overbearing strength in the UK economy," said David Evans of BetonMarkets.

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 late London trade on Wednesday, the euro was changing hands at 1.3916 dollars against 1.3980 dollars late on Tuesday, at 132.30 yen (132.76), 0.8691 pounds (0.8778) and 1.5126 Swiss francs (1.5158).

The dollar stood at 95.16 yen (94.95) and 1.0879 Swiss francs (1.0839).

The pound was at 1.5996 dollars (1.5923).

On the London Bullion Market, the price of gold increased to 951 dollars an ounce from 945 dollars an ounce late on Tuesday.