Dominique Strauss-Kahn, the French head of the International Monetary Fund, escaped dismissal for a one-night stand with a subordinate today, but was denounced by board members for a "serious error of judgment."

The fund's managing director was allowed to remain in his post after an investigation cleared him of accusations of harassment, favouritism and abuse of power over his affair with Piroska Nagy, a Hungarian economist.

But his reputation took a battering in the statement by the IMF board, which said the relationship "was regrettable and reflected a serious error of judgment on the part of the managing director."

Shakour Shaalan, the fund's executive director, said IMF staff, and notably female staff, "are not at all happy" with Mr Strauss-Kahn, whose amorous adventures in France have earned him the epithet le grand seducteur.

"The managing director has expressed his regrets. I don't think that we can ask him to do more at this time," said Mr Shaalan. "We will continue to work with him."

Mr Strauss-Kahn, 59, said in a statement: "I very much regret the incident and I accept responsibility for it."

The investigation was launched when Mario Blejer, a senior Argentine economist, said Mrs Nagy, his wife, had been seduced at the Davos international forum.

A US law firm was asked to probe accusations that Mrs Nagy, who left the IMF in August, had been forced out by Mr Strauss-Kahn, possibly with an exorbitant pay-off. Morgan, Lewis & Bockius said there was no evidence to support the claims.

The decision was greeted with relief in France, where Mr Strauss-Kahn is seen as a key figure in President Sarkozy's drive to remodel and regulate capitalism in the wake of the financial crisis.

French commentators hailed the role played by Anne Sinclair, Mr Strauss-Kahn's wife, a former television presenter, who wrote in her blog: "Everyone knows that these are things which occur in the life of all couples.

"This one night adventure is now behind us. We love each other as much as we did on the first day."

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