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The European Central Bank is watching currency markets very closely, Vice President Lucas Papademos said in comments released on Tuesday. Papademos told Russian daily Izvestia that recent

movements in exchange rates had been "excessive" and that there was still high uncertainty about the impact of financial market turmoil on the financial system and the economy.

According to a transcript of the comments provided by the ECB, Papademos noted comments by the Group of Seven nations that excessive volatility and disorderly movements in exchange rates

were undesirable for economic growth, and said excessive moves were a cause for concern in the current circumstances. "It is therefore in the interest of all the relevant authorities

that excessive volatility in exchange rates does not have an adverse impact on economic growth at a time when the pace of economic activity is moderating," he said. "The U.S.

authorities have recently reaffirmed that a strong dollar is in the interest of the United States. We will continue to monitor foreign exchange markets very closely." The dollar has

been battered by growing fears about the U.S. economy and the widening impact of subprime mortgage problems, hitting a record low against the euro at $1.5905 last week and a 13-year low

against the yen last week. Papademos also said European banks had lost about $78.5 billion as a result of the financial market turmoil, based on publicly reported results, and euro zone

banks had lost about 22 billion euros. But this was manageable, taking into account capital buffers, he said.