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Dollar shows divergent trend fresh gains seen ahead

NEW YORK: The dollar closed narrowly mixed on Friday in thin US trade after fresh economic data showed the US economy growing steadily with only modest inflation.

US stocks and bonds enjoyed healthy gains on the day, boosting the dollar past selling pressure and underpinning hopes for future gains.

"The dollar should stay choppy but it will attempt to trade higher. It's vulnerable to profit-taking as well as any accident in the stock market," said Philip Vasan, managing director for foreign exchange derivatives at CS First Boston.

Reports showed U.S. consumer prices rose 0.4 percent in March while February retail sales growth was revised sharply higher from initial reports to 1.9 percent.

The reports hinted at rising inflation, but a newspaper report claiming Federal Reserve Chairman Alan Greenspan was unconcerned about an overheating economy soothed the markets.

"The markets are keeping an eye out for inflation in the pipeline given the recent runup in commodity prices. The Greenspan comments overrode that," said Vasan.

The dollar closed higher at 1.5041/49 marks from 1.5014/21 at the open and nearly flat at 108.57/64 yen from 108.56/61.

The dollar climbed against the Swiss franc, which augured for continued gains against the mark and other European currencies in coming sessions, traders said.

"We saw quite a bit of buying of dollars for Swiss francs. That's a pretty positive sign," said Stephen Jury, chief dealer at Union Bank of Switzerland.

The dollar rose to 1.2268/78 Swiss francs from 1.2211/16 at the open.

The mark remained weak across the board, helping encourage investors to hold dollars into the weekend.

Many analysts expect leaders of the German central bank or Bundesbank to lower official interest rates when they meet next week to help stimulate a stumbling German economy.

That would encourage capital flows to higher-yielding dollar-linked assets.

Also, a weekend meeting of European leaders in Verona, Italy to prepare for a proposed single European currency could bring fresh mark losses, traders and analysts said.

A unified currency would diminish the mark's appeal as a safe haven in times of market turmoil. News of progress in the plodding discussions could stagger the German unit.

"The market mood may depends on what comes out of the meeting in Verona. If monetary union looks like a more realistic possibility that tends to be more negative for the mark," said Anne Parker Mills, currency analyst at Lehman Brothers."

By ending the week above key support at 1.50 marks, the dollar looks well-positioned for a fresh rally to the 1.51 to 1.53 range. Against the yen, the key hurdle is 109.

"That's our second consecutive close above 1.50 marks. It certainly helps preserve the bullish tone for the dollar," Jury said.

Elsewhere, sterling closed flat at $1.5137/44 from $1.5139/46. The dollar edged higher to Canadian $1.3561/65 from C$1.3554/59.

The Australian dollar closed higher at $0.7910.15 from $0.7891/96.-Reuter