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Greenback

soars in

New York

NEW YORK: The dollar on Friday powered ahead in the U.S., building on a big overnight rally linked to hedge fund buying and hints of future German interest-rate cuts.

"I think the sentiment has changed for the near term," said Christopher Iggo, international economist at Chase Manhattan Bank. Iggo saw the recent gains as a continuation of the uptrend begun on August 2 with joint U.S.-Japan intervention and the Japan's government's unveiling of measures to spur overseas investment.

The signs appear encouraging for the near future, he said, even though the long-term outlook may not favor the dollar.

At the close, the dollar was at 1.4392/02 marks, up from 1.4340/50 marks at the open and more than two pfennigs higher than Thursday's U.S. close at 1.4192/02 marks. It was at 93.85/95 yen, little changed from the open's 93.85/95 yen but up sharply from late Thursday's 93.90 yen.

The close against the mark was the dollar's highest level in two-and-a-half months, while dollar/yen hit highs not seen in more than five months.

The Bundesbank's Johann Wilhelm Gaddum helped trigger the latest dollar-buying wave, when he told Reuters banks had room to pitch bids lower on the securities repurchase rate.

Iggo said that while the prospects of lower German interest rates are certainly feeding a bullish tone to the dollar, a variety of factors have been working in the currency's favor recently.

"The key reason has been the Bank of Japan buying of dollars over the past few weeks combined with measures the Japanese government has taken to stimulate overseas investment and the (U.S.) Federal Reserve's participation in intervention," Iggo said. "None of these things have been enough by themselves (to trigger the rally) but together they are helping to move the dollar higher."

In addition to the talk of lower German rates, rumors that hedge funds run by financier George Soros were placing bets on a higher dollar contributed to the rally.

There has also been widespread but unconfirmed talk that the People's Bank of China needed to buy large amounts of dollars to cover an options-related position in the currency market.

The greenback did suffer a temporary setback early in the U.S. session on news of a weaker-than-expected U.S. retail sales report that showed sales slipping by 0.1 percent in July. But the dollar quickly resumed its climb.

Some traders cautioned that while the recent gains in the dollar are encouraging they might be exaggerated by the thinness of the summer market.

"We could be at the beginning of a big move higher in the dollar," said Debra Larsen, assistant vice president at Commerzbank. She added it was unclear yet whether U.S. corporate players would be entering the market in droves to hedge against the risk of a sharp dollar rise versus overseas currencies.

At the close, the dollar was at 1.1940/50 Swiss francs, up from the open's 1.1920/30 Swiss.

It was at Canadian $1.3604/09, up from C$1.3559/64. Sterling was at $1.5710/20 from $1.5810/10.

The Australian dollar closed at $0.7424/29.

At midday, the Morgan Guaranty trade-weighted index stood at 92.5 percent of its 1990 trade-weighted value.-Reuter