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Dollar shows weaker

trend in Tokyo

TOKYO: The dollar weakened against the yen, primarily in line with persistent selling pressure of the German mark against the yen in cross trade, which saw it fall below 70 yen for the first time since December 11.

"Mark/yen trade continues to dominate activity here and the mark looks vulnerable to falls," said a bank dealer. The mark was at 69.91 yen at 0612 GMT against 70.00 yen in early trade.

Selling pressure on marks for yen mainly stemmed from overseas operators including U.S. funds, while some Japanese investors kept buying marks on falls, dealers said.

"Although selling pressure today softened slightly compared to yesterday, the mark's recovery remained well-capped," said a senior trader at a French bank in Tokyo.

A Japanese bank dealer said: "The mark is standing just above technical support of 69.80 yen, and a clear break of that point is expected to hit the mark further with possible stop-loss sales," he said. But there is also a chance that the mark will be sustained at that level overseas, he added.

The mark's weakness against major currencies has been generated partly by the prospect of a further drop in interest rates there in light of a sluggish German economy.

Growing expectations that Italy will rejoin Europe's Exchange Rate Mechanism (ERM) have helped raise the Italian lira against the mark. "If Italy rejoins the ERM, I think the mark could break 1,000 lira easily," said the Japanese bank dealer. The mark was quoted at 1,022.50 lira at 0638 GMT.

On Tuesday, Italy's centre-left leader Romano Prodi, who is expected to be the next prime minister, said: "I see no reason for not making a serious rapid re-entry,"

"I'm not bearish on dollars, but the mark momentum is very strong. And that could drag dollar/yen down a little," said a U.S. bank dealer in Singapore, adding, however that the lower end of 106 yen would be supported.

There has occasionally been vague market talk since Tuesday that the Bank of Japan (BOJ) might be worried about the dollar's recent falls against the yen and that it checked exchange rates with commercial banks.

One dealer in Tokyo said the BOJ appears concerned about the dollar falling to around 105.70 yen, which is a 90-day support line.

The dollar maintained its firmness against the mark in Asia, but eased slightly in late trade on profit-taking.

The U.S. currency ended at 1.5215/25 marks in New York, its highest closing level since February 13, 1995. "Generally, I think the dollar looks a little over-extended at these levels. I would expect to see dollar/mark topping out around the 1.5230/40 level," said a British bank dealer in Singapore. The dollar's rise was capped below 1.5250 marks in Asia, while support is seen at 1.5200 and 1.5180 marks, Tokyo dealers said.-Reuter