(March 20) NEW YORK — With war under way in Iraq, the U.S. dollar continued its recent rally against most of its major rivals March 19, particularly the euro, but analysts warned that a protracted military conflict could work against the dollar.

The dollar was up against most other major currencies in European trading March 19, hours before President Bush launched the first strikes against Iraq.

The euro was quoted at $1.0586 March 19, down from $1.0621 a day earlier. Early March 20, the euro was trading at $1.0579.

The strength of the dollar against other currencies is of particular importance to importers and exporters. A weak dollar enhances the value of exported U.S. products while pulling down the value of imports. A strong dollar hurts exports and helps imports.

“I think we’ve probably now entered a phase where the market’s going to be quite volatile,” said Andrew Weiss, a strategist with AIG Trading Group, Greenwich, Conn. “The main story until last night (when the U.S. launched the war in Iraq) was the dollar rally starting to peter out a bit. Now, I expect you’ll have a mix with incredible flow of news and rumor, so we’re likely to see a lot of volatile things over the next few days.”

Other dollar rates in Europe March 19, compared to a day earlier, included 119.58 Japanese yen, up from 118.86; 1.3897 Swiss francs, up from 1.3838; and 1.4818 Canadian dollars, up from 1.4785.

The dollar gained ground to the British pound March 19, at 0.6392, up from 0.6384.

Importers and exporters of fruits and vegetables, as well other commodities, can expect a strong dollar, but not for long, said Lara Rhame, senior economist with Brown Brothers Harriman, New York.

“I think we are going to see this dollar rally continue in the short term,” she said. “But I actually think that our view is that this dollar rally will not continue.”

The reason? A fragile economy in the U.S.

“I think the dollar is in fact on a weaker footing than most market participants realize, and I think now markets have set themselves up for such a quick and clean resolution (of the war),” Rhame said. “I think there are many headwinds that are going to hold back growth, so I think you’re going to be in a situation where U.S. economic data are going to continue to disappoint and the dollar will fall throughout the year.”

Both Weiss and Rhame agreed that several factors other than the war will determine how the dollar performs over the short term.

“Really, since last October, the dollar has been on a straight-down trend across the board,” Rhame said. “This was particularly apparent against the euro since January, when the euro was really strong.”

A fitful U.S. economy had enabled the euro to play catch-up with the dollar over the past year, before the prospects of war helped the dollar to stage a recent surge, Rhame said.

“I think the euro caught up for several reasons,” she said. “One is the fact that the U.S. already has such a massive dependence on foreign capital, and our own domestic situation is deteriorating. Growth isn’t as strong. We have a big government deficit materializing, and the stock market isn’t performing very well. For all these reasons, the dollar’s level is dependent not only on U.S. demand for dollars but foreign demand.”