960425

Dollar falls after

piercing key levels

NEW YORK: The dollar ended lower against the German mark and the Japanese yen Wednesday as traders took profits after the currency's recent gains.

In early trading the dollar sailed to a fresh 14-month high of 1.5245 marks in Europe and climbed just shy of 107 yen in New York.

It then spent most of the trading day in the United States hovering above the key level of 1.5200 marks as traders continued to sell the mark against the yen and European currencies on expectations that Germany will lower interest rates soon.

"The mark has gone lower basically because of expectations of lower interest rates in Germany," said Teddy Enomoto, foreign exchange manager at Sumitomo Bank Ltd.

The Bundesbank, Germany's central bank, cut key interest rates by half a percentage point last week, but many analysts believe the move came too late to lift the German economy out of its recent stupor.

The Bundesbank has had to balance maintaining tight credit policies to keep inflation under control and the mark strong, with cutting interest rates to give the German economy a much-needed jumpstart, analysts said.

The dollar climbed as high as 1.5226 marks in New York but eased late in the day on a combination of profit-taking and selling by exporters.

Late on Wednesday the dollar was 1.5205 marks against 1.5214 on Tuesday and to 106.53 yen from 106.68 on Tuesday.

The fact the dollar was able to hold above 1.5200 marks for most of the New York trading day and hit new highs in Europe bodes well for further rises, traders said.

"There's nothing to say the dollar has turned. The trend is still higher," Gabriel Grippo, chief dealer at Credit Agricole, said.

Rumours that the Bank of Japan was standing by ready to buy dollars around 106 yen to keep the Japanese currency from appreciating gave the dollar a lift toward the day's high of around 107 yen, traders said.

A strong yen would hurt Japan's economy, which is just now coming ouf of a recession, by making Japan's exports more expensive in world markets.

Demand for yen has been intensifying, especially against the mark, on prospects that Japanese interest rates have bottomed out and German interest rates are going lower.

Lower interest rates tend to make investment in a country, and hence its currency, less attractive.

The yen soared against the mark overnight, rising to levels not seen since December 1995, before losing ground during much of the New York trading day.

In other trading, the dollar fell to 1.2308 Swiss francs from 1.2335 on Tuesday.

The British pound slumped to $1.5155 from $1.5170.

The dollar climbed to Canadian $1.3653 from C$1.3625.-Reuter