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Dollar holds 14-month

highs, bourses dull

LONDON: A reinvigorated dollar held 14-month highs against the mark on Thursday but European bourses got off to a poor start, with most showing losses.

The U.S. currency climbed over half a pfennig to 1.5278 by midday in Europe marks from Wednesday's late 1.5213, as expectations of a German interest rate cut undermined the mark, dealers and analysts said.

German central bank council member Franz-Christoph Zeitler said the mark was still overvalued in the long term and that last week's interest rate cuts kept hopes alive of more cuts. His remarks boosted the dollar.

"There is no self-made end of the road for the discount and the lombard rate," Zeitler said.

A brighter outlook for the dollar was also brought about by robust U.S. economic figures which have sparked talk of the Federal Reserve raising interest rates.

The dollar was also helped by the mark falling against the Swedish crown as Sweden cut lending rates in a move that showed confidence in the growing strength of its economy.

The American currency also inched up against the yen after Japan's announcement of a pact with seven Asian partners in a drive to provide liquidity and help stabilise foreign exchange markets in the region.

The pacts give participants access to immediate cash -- for use to defend their currencies against excessive volatility -- by selling their holdings of U.S. government securities to a pact partner on a temporary basis with a promise to buy them back later.

Analysts said the agreement with Australia, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore and Thailand was part of an effort by Japan to increase its leverage in the foreign exchange markets and its immediate impact had already been exhausted.

The dollar jumped on the news, trading at just above 107 yen in Tokyo overnight. By midday in Europe it was at 107.04 yen compared with 106.80 on Wednesday.

Equity markets across Europe looked lacklustre. London was down in morning trade, hit by further falls in electricity companies after Wednesday's blocking of two bids by generating firms for regional distribution companies.

Disappointing results, a profit warning and the failure of a much-awaited buy-back from chemicals giant ICI knocked sentiment further, dealers and strategists said.

"The lack of bids and the lack of a buy-back from ICI have done some damage this morning," said a dealer.

On Wednesday power shares plunged after the Department of Trade and Industry surprised the market by blocking National Power's 2.5 billion sterling ($3.8 billion) bid for Southern Electric and PowerGen's proposed bid for Midlands Electricity.

In Frankfurt, German floor trade slipped by 0.39 percent in the morning session, depressed by a lower close on Wall Street.

French shares were down 0.43 percent in early trading as the market priced in a widely-anticipated cut in interest rates by the Bank of France. Traders said the market would likely stick to a narrow range ahead of the Bank's move, due at 1115 GMT.

CURRENCIES AT 1100 GMT

The dollar stood at 1.5278 marks versus 1.5213 late on Wednesday, and at 107.04 yen versus 106.80.

STOCKS AT 1100 GMT

The Financial Times-Stock Exchange index of 100 leading British shares was down 6.8 points at 3,810.8

In Paris, the CAC-40 share index was down 8.48 points, at 2113.62.

The 30-share DAX index in Frankfurt was down 7.30 points at 2,530.96.

PRECIOUS METALS

Gold was fixed at $390.35 an ounce compared to $390.90 at London's close on Wednesday. Silver was little changed at $5.31, down a cent.-Reuter