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Dollar swings to tune

of mark crosses in Europe

LONDON: The dollar failed to budge on its own initiative by midday in Europe, but instead moved at the whim of the weakening mark in many of the crosses. The lira surged beyond the 1020 per mark level to its best level in 18 months, which helped to underpin dollar/mark. The yen eyed the key 70 per mark barrier and kept dollar/yen perched nervously around 106.70. "Mark/lira, mark/yen and mark/Swiss are all expected to weaken further," said Jiro Nagato, a senior dealer at Sumitomo Bank. "The dollar in itself lacks fresh incentive to break 1.52, but mark/yen's break of 70 would set it up for the next stage." At 0958 GMT, the dollar stood at 1.5171/81 marks and 106.85/95 yen compared with 1.5159/69 and 106.62/67 in late European dealings on Monday. Victory by the centre-left in Italian general elections had set the lira sailing yesterday. The new government's plans to put the lira back into the ERM as soon as possible and prospects of a Bank of Italy rate cut have fueled the latest surge. The lira dropped out of the mechanism in September 1992. It stood at 1019.80/2.00 per mark at 0956 GMT versus 1022.50/3.00 on Monday. Centre-left leader Romano Prodi has said ERM re-entry was his priority and also urged the central bank to lower rates. Italy lowered the repo to 9.65 percent from 10 percent earlier this morning to its lowest level since February 1995. The Bundesbank's credit-easing last week has enabled other European central banks to loosen their grip on monetary policy, and the Riksbank this morning cut its key repo rate to 6.9 percent from 7.15 percent. The Swedish crown rallied to 4.4205/35 per mark, extending its rise to the three-year highs set on Monday. Spain, which was expected to cut the repo by as much as 50 basis points, left money rates unchanged. France is expected to reduce its intervention rate when its council meets on Thursday. "The rate cutting season continues in Europe this week," Deutsche Morgan Grenfell wrote in its daily commentary. "However, one can not help but think that the virtuous cycle of lower rates and stronger currency may soon run out of steam." As the mark zeroed in on Monday's low of 70.16 yen again, the dollar briefly dipped below 106.50 yen. Dealers said Japanese life insurers bought dollars between 106.48-106.55 and prevented a further fall, dismissing scattered talk that the Bank of Japan (BOJ) had stepped in to slow the dollar's losses. At 1016 GMT, the mark was little changed from yesterday at 70.34/36 yen. The December lows near 69.70 were in sharp focus. The improving U.S. trade picture, particularly with Japan, has offered fundamental support for the dollar in recent months. Economists polled by Reuters expected that trend to have remained intact in February as they forecast the international U.S. trade deficit to have improved to $8.7 billion from a $10.3 billion shortfall in January.-Reuter