960423

Dollar static as eyes

turn to rate

cuts in Europe

LONDON: The dollar was virtually unchanged in early dealings as the mark/yen cross continued to dictate direction, while European operators were fixated on interest rate cuts expected in various centres this week.

Last week's half-point easing by the Bundesbank has set the stage for easier credit, and the Riksbank led the way today by trimming its key repo rate to 6.9 percent from 7.15 percent.

"If mark/yen drops through 70, that'll really frighten dollar/yen bulls. Dollar/mark will probably stay under 1.52 so most of the excitement might come from the crosses today," said a dealer at a U.S. bank in London.

At 0716 GMT, the dollar stood at 106.60/65 yen and 1.5157/62 marks compared with 106.62/67 and 1.5159/69 in late European dealings on Monday.

The Riksbank's easing was widely expected as inflation has remained under control and the Swedish crown has rallied to its best level in three years against the mark, analysts said. The mark stood at 4.4240/70 crowns versus 4.4470/00 on Monday.

Analysts had been expecting the Bank of Spain to trim its key money rate by as much as 50 basis points. But the central bank announced that it would leave it unchanged at 7.75 percent earlier this morning.

The peseta has risen to 83.16/18 per mark, its best level since November 1994. The mark has started to see the 83.18 level as its informal ERM 2.25 percent band, according to ABN-Amro treasury economist Tony Norfield, and a rally to that level has fanned speculation about a cut in the money rate.

Elsewhere, the Bank of France is expected to decide to lower its intervention rate at its next council meeting on Thursday, while the centre-left victory in Italian general elections has raised expectations of easier credit there too, analysts said.

Centre-left leader Romano Prodi on Monday urged the Bank of Italy to lower rates as soon as a new government was formed.

Lower interest rates are likely to be part of Italy's plans to put the lira back into the European Exchange Rate Mechanism, (ERM), analysts said.

Prodi said in an interview published today that the lira's ERM re-entry within a few weeks of taking power would be his government's priority. The lira dropped out in September 1992.

The mark's decline in the European crosses will continue to support dollar/mark, dealers said, but there was talk in Tokyo overnight of U.S. funds and a Chinese bank looking to sell above 1.5200 marks. A brief rally at the start of the week failed to push it above that barrier and the rise halted at 1.5199.

The mark dropped as low as 70.16 yen yesterday, helping to keep a firm lid on dollar/yen gains. It recouped some losses by this morning to stand at 70.30/35 but it still looked to threaten last December's lows around 69.70/80, charts showed.

Data due today include U.S. international trade figures at 1230 GMT. The deficit is expected to shrink to $8.7 billion compared with $10.3 billion in January, according to a Reuter poll of economists.-Reuter