BERLIN - German Chancellor Angela Merkel dismissed market rumors on Friday that she was to resign, saying the speculation was absurd.

The rumor pushed the euro down roughly half a cent against the dollar in Asian trade, and the currency remained under pressure in Europe as concerns about the struggling Greek economy highlighted weakness in the euro zone.

The origin of the rumors was unclear and observers in Berlin were flabbergasted by the speculation.

We don't need to address the absurdity of this thought any further, Merkel told a news conference in Berlin.

Earlier, government spokesman Christoph Steegmans had said he was baffled by the talk.

Rumors about Merkel's resignation are just pulled out of thin air, Steegmans said.

The euro traded at around $1.4373 by 1320 GMT, close to a session low.

Squabbling within Merkel's center-right coalition on issues including tax cuts, Afghanistan and health policy has marred the start of her second term. Her support has waned but is still strong and she faces no challengers within her government.

The rumors followed the publication of a Time magazine article about Merkel's domestic political problems and the market had already been unsettled by fears about the impact on the euro of the Greek budgetary crisis.

Merkel told reporters all euro zone states had to work to reduce their deficits within the framework of European budget rules enshrined in the bloc's Stability and Growth pact

Given the varying deficits of the European member states, everyone must of course do their homework, she said.

The Stability and Growth Pact is our joint platform but each member state must itself take the necessary steps and I will add with regard to Greece that important steps toward budget consolidation have been taken, she added.

However, Merkel was quoted on Thursday as saying the euro faced a very difficult situation in the next few years.

Some members of her Christian Democrats (CDU) accused Merkel this week of failing to show enough leadership.

But her position within her party and in the government has been unchallenged since she was re-elected with a clear majority on September 27. She is widely credited with steering Europe's biggest economy through the global financial crisis.

Merkel is due to meet the leaders of her coalition allies on Sunday to try to secure agreements on key policies.

A poll last week by ARD television showed support for Merkel had fallen by 11 percentage points from December to 59 percent, her lowest personal approval ratings since the end of 2006.

(Reporting by Angelika Stricker, Madeline Chambers and Paul Carrel, editing by Patrick Graham)

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