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Dollar sets fresh high against

bruised mark in Europe

LONDON: The dollar set a 14-month high against the mark in Europe and retained a firm bid throughout the session as talk of a cut in German interest rates this week and optimism about European monetary union following the weekend EU finance minsters meeting conspired to weaken the German unit.

The mark's losses against the dollar were mirrored across the board, notably against the fragile yen where it slipped to two-and-a-half week lows below 72.0 yen.

Elsewhere, EMU-enthusiasm and easing fever sent the mark to fresh 15-month lows against the Italian lira, 16-month lows versus the Spanish peseta and 26-month lows on the French franc.

"People are really hoping for a cut in German rates this week and the dollar still looks like it can push higher against the mark in particular," said Tony Ives, trader at MeesPierson Derivatives in London.

"We've seen good support today at 1.5160/70 and 108.25 and a break up through these levels would target 1.55," he said.

The Bundesbank central council meets on Thursday.

At 1513 GMT, the dollar was at 1.5100/05 marks, up from 1.5045/50 late Friday but off intraday highs at 1.5130. Against the yen, it was at 108.35/38 compared with 108.63/66 late Friday and shy of the 26-month high set at 108.98 late last week.

Bundesbank president Hans Tietmeyer contributed to the continued weakness of the mark by saying overnight that he welcomed the "normalisation" of exchange rates which had taken place in recent months and he reiterated that view in Basle later in the day.

Further German easing hopes were gleaned from the expected release later this week of the March German M3 money supply which is expected to show the annualised growth rate in M3 slow to 10.8 percent in March from a 12.8 percent gain in February.

The weekend meeting of European Union finance ministers in Verona also helped undermine the mark, analysts said.

The ECOFIN meeting rubber-stamped the steady process toward EMU by reaffirming its desire to reconstuct the European exchange rate mechanism and keeping membership of the system for two years a prerequisite to joining a single currency. It also avoided conflict by making ERM membership non-compulsory and by not allowing EU sceptical countries to veto the process.

"I think the most impressive outcome for the market was the absence of any talk of either delay or postponement of EMU and that has underlined the intense political will behind all of this," said Paul Meggyesi, senior currency strategist at Deutsche Morgan Grenfell in London.

The prospect of the disappearance of the mark and a dilution of Bundesbank power after EMU in 1999 has grown and it has weighed heavily on the German currency in recent months.

While the lira is still seen as good value at current levels, the recent sharp rise of the French franc and Spanish peseta is seen as raising fresh concerns about competitiveness of the these units and talk of covert central bank intervention to smooth their respective appreciations abounds, traders said.

This talk may persist as the market comes to grips with the reformation of the ERM and targeting of new levels, they said.-Reuter