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Dollar edges down

in quiet trading

NEW YORK: The dollar edged lower in quiet trading Thursday as the battered mark continued to slump against most currencies.

The mark hit a 25-month low against the French franc and a 14-month low against the Italian lira. Widening forecasts of lower German official interest rates, which would make mark-based assets less attractive, also boosted the dollar.

"We saw a strong trend of pressuring the mark in Europe with trade moving toward higher yields and that was indirectly supporting the dollar," said Mike Malpede, senior foreign exchange analyst at Refco Group.

But the dollar ended well below the 14-month high it visited Wednesday at 1.5068 marks and failed to hold a new 26-month high at 108.88 Japanese yen reached overnight.

The greenback closed at 1.5027/30 marks, barely down from the 1.5035/40 opening, and at 108.55/65 yen from 108.60/70.

A report showing the U.S. producer price index rose 0.5 percent in March echoed a recent surge in commodity prices, stoking fears that long-stagnant inflation could accelerate.

While inflation could ultimately weaken the dollar, some investors read the report positively, since it further diminished the chances the Federal Reserve will cut U.S. interest rates in coming months.

"We saw two-way flows. People are willing to buy the dollar on dips, but they're hesitant to buy in volume because a lot of people are already long dollars," said one New York-based trader.

U.S. stocks and bonds fell sharply in early trading, which discouraged aggressive dollar buying. But after an initial decline of over 70 points, the Dow Jones industrial average later rebounded, closing up one point.

The dollar has largely ignored heavy losses in U.S. asset markets in recent sessions, but traders said the trend could dent the currency if it persists.

"The bonds and stocks were pressured again but it doesn't seem to be having any direct impact on the dollar," said a U.S. dealer. "The fact that we've continued to see the stock market under this kind of pressure puts the potential for significant dollar gains severely at risk."

Analysts remain generally upbeat about the dollar's long-term prospects, with eventual rallies to 1.52 marks and 110 yen expected.

But the dollar must first make a convincing run through staunch resistance at 1.5050 marks before peripheral market players are willing to jump on the bandwagon.

"We need some kind of event to push the dollar up there," Malpede said. "We'll try the highs again, but it will be a slow rally and won't extend very far for now."

Elsewhere, the dollar rose to 1.2212/19 Swiss francs from 1.2190/00 at the open. Sterling fell to $1.5110/17 from $1.5130/35.

The dollar edged higher to Canadian $1.3565/70 from C$1.3555/60. The Australian dollar rose to $0.7904/09 from $0.7890/95.-Reuter