Aug. 3 (Bloomberg) -- The euro strengthened against the dollar for a third day as an industry report showed growth in European services industries accelerated last month.

The euro also advanced versus the yen after an index based on a survey of purchasing managers for Reuters Group Plc rose to 53.5 from 53.1. Goldman Sachs Group Inc. yesterday abandoned its prediction that the European Central Bank will cut its benchmark interest rate this year.

``The data from Europe has been encouraging,'' said Sven Friebe, a currency strategist at Credit Suisse Group in Zurich. ``Sentiment has bottomed out on the euro and is on the rise, and that's enough to allow the euro to strengthen.''

The euro rose to $1.2227 at 9:26 a.m. in London, from 1.2191 late yesterday in New York, according to electronic foreign- exchange dealing system EBS. The euro climbed to 136.38 yen from 135.89. The dollar also traded at 111.54 yen, from 111.47.

Surveys in the past week showed French and German business confidence is strengthening. Paris-based statistics office Insee reported July 27 that businesses were the most confident in four months in July. Germany's Ifo institute said the day before its index reached the highest in five months in July.

``Positive figures will lead to euro buying, as it shows Europe is in the process of economic recovery,'' Akihiro Tanaka, senior currency dealer in Tokyo at Resona Bank Ltd., said before the report. ``With this report we will probably figure out the European economy is not as bad as we thought.''

Interest Rates

Interest-rate futures show traders have scaled back expectations the ECB will lower rates this year. The yield on the December Euribor contract was at 2.19 percent, up from a low of 1.96 percent on June 22, according to data compiled by Bloomberg.

Three-month Euribor, the euro interbank offered rate, since 1999 has averaged about 15 basis points above the ECB's benchmark rate. A basis point is 0.01 percentage point.

In other trading, the yen snapped a two-day rally before the upper house of parliament votes on a plan to sell Japan's postal system, a priority for Prime Minister Junichiro Koizumi.

Koizumi told reporters in Tokyo today a vote against the bill would amount to a rejection of his leadership. A vote will be held on Aug. 5.

``We cannot expect a too-much stronger yen,'' said Takako Masai, head of currency and derivative sales in Tokyo at Calyon, the investment banking unit of Credit Agricole SA, France's largest bank. ``Investors will take a wait-and-see attitude toward the fate of the postal reform bill this Friday.''

To contact the reporter on this story: Rodrigo Davies at rdavies13@bloomberg.net

Last Updated: August 3, 2005 04:28 EDT