Norway's central bank resisted the temptation to increase its oil fund's purchases of foreign exchange for April Friday, giving investors fresh reason to buy the krone after it wrong-footed markets earlier this month with an interest rate cut designed to stymie the currency's strength.

The euro fell against the Norwegian krone by 0.6% to as low as NOK7.5900 and the krone firmed against the Swedish krona, pushing toward SEK1.165 after Norges Bank announced it would keep its purchase of foreign exchange in April at NOK350 million a day, continuing the same pace seen since January.

Some investors had expected the central bank to up its purchases to at least NOK500 million a day.

"Several banks had made the case that the Norges Bank would increase their purchases to weaken the currency but this didn't happen," said currency strategist Richard Falkenhall at SEB AB (SEB-A.SK) in Stockholm.

Danske Bank A/S and Citigroup (C) were among the banks expecting Norges Bank to up its purchases.

"We expect that the daily amount will rise from NOK350 million in March to NOK500 million in April. The reason is higher tax income in the first quarter and the still-high oil price," said Danske Bank ahead of the Norges Bank decision.

Citigroup had suggested that an increase in purchases would be used to keep up the pressure on the strong krone. After the decision, the bank's currency strategist Valentin Marinov said the lack of action was like an open invitation to currency traders to buy the krone, not least because a robust set of Norwegian retail sales figures published around the same time underlined just why the Norwegian currency was in demand.

Data showed Norway's seasonally adjusted retail sales, excluding motor vehicles, rose 1.0% on the month in February, showcasing the country's healthy economic fundamentals just as the euro zone is seen slipping into recession.

"What [the Norges Bank decision] means is there will be a very slight headwind against krone inflows," said Michael Sneyd, a currency strategist at BNP Paribas S.A. (BNP.FR).

The data also leaves the central bank in a bind. Having surprised markets March 14 by cutting its key rate to 1.50% from 1.75%, it could be forced into an about-turn to temper excessive credit growth after a series of above-target economic data releases.

DNB Markets now think the interest rate could be hiked this August.

At 1233 GMT, the euro traded at NOK7.6090 against the krone while the krone traded at SEK1.1627.

-By Alexandra Fletcher, Dow Jones Newswires, 44 20 7842 9462;

alexandra.fletcher@dowjones.com @djfxtrader

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