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Currencies finish

sharply up on IMM

CHICAGO: Brisk trading left most IMM currency futures sharply higher on Thursday, buoyed by rounds of technically oriented buying that kicked in after key units proved more resilient than expected to a German rate cut.

Traders said closing activity had wound down, with some late offers noted in yen, while near-term sentiment seemed mixed after Thursday's seesaw trade.

Some said currencies had rallied too far, too fast and are vulnerable to more pullback. But others looked for slightly more upside in yen, marks and Swiss francs after the dollar stalled its early rally, fell, then clawed back some losses.

But they also said the market might move more narrowly as it eyes the weekend Group of Seven meeting, which some expect to produce a stronger communique than the one last April.

The US dollar initially advanced when Bundesbank lowered its discount and Lombard rates 50 basis points apiece to 2.50 percent and 4.50 percent, respectively.

The move, which left the repo rate fixed at 3.30 percent and with more downside potential, caught traders slightly off-guard. Yet it also fostered talk that this might be the last German easing and that the next move could be toward tighter German credit policy, perhaps even later this year.

But the dollar stalled and soon gave back gains, returning below key technical levels against yen and marks and hitting stops on the way back down, traders said.

"The market (dollar) found it very difficult to sustain gains against the continentals", said a floor trader.

Cross trading also dominated as the yen smacked the mark sharply lower and below the key 71.00 level in that cross.

"I think the driving force really has been the mark/yen", said Brian Garvey, currency strategist, IDEA Inc. "It looks like that cross could be breaking out to the downside".

The yen also gained ground on signs that Japanese importers and insurers may have had bids near the 108.00 to 107.50 levels but subsequently pulled the bids and stepped aside when bids that had been expected from a big Japanese fund near the 107.70 level never materialised, traders added.

Swiss francs at midmorning bounced up when the Swiss National Bank said it left its discount rate unchanged, which slightly surprised some traders who had expected a token 25-basis-point cut in Swiss rates after Bundesbank's move.

"We were looking for nothing or 25 basis points", Garvey added.

The Canadian dollar slumped when the Bank of Canada cut its key bank rate by 25 basis points 5.0 percent and lowered the target range for overnight funds to 4.5 to 5.0 percent.

"This is a big surprise", said Garvey. "We don't think on a fundamental basis this was needed". He noted that put Canadian rates below US Federal funds 5-1/4 percent and could hurt Canadian dollar by discouraging investment inflows.

June yen jumped $0.000136 to $0.009448, marks rose $0.0019 to $0.6681, Swiss up $0.0063 at $0.8258, Sterling rose $0.0090 to $1.5174, Can dlr fell $0.0029 to $0.7343, Aussie dlr lost $0.0030 to $0.7805, Mexican peso rose $0.000450 to $0.128800.-Reuter