960409

Dollar

sustains rally

in Europe

LONDON: The dollar set a nine-week high against the mark and a 26-month high against the yen here as markets interpreted the March U.S. employment report as meaning the next move in U.S. interest rates will be higher.

U.S. long-term yields soared Monday after news of a bigger-than-expected 140,000 rise in U.S. non-farm payrolls on Friday and only a modest downward revision to the spectacular rise in February payrolls from 705,000 to 624,000.

As U.S. yields rose, hopes for credit easing in Germany were kept alive. Dire industrial oders data for February and benign comments from Bundesbank president Hans Tietmeyer all helped.

"Friday's number was a decisive push for the dollar," said Ian Amstad, economist at Bankers Trust. "We've got a situation where the U.S. is at, or even through, full employment while the German data continues to be extraordinarily weak."

Amstad said he sees the Federal Reserve raising its 5.25 percent federal funds target rate by July.

At 1525 GMT, the dollar was trading at 1.4915/20 marks compared with 1.4800/05 late Thursday, before European markets closed for the Easter break, but off the 1.4940 intraday high. Against the yen, it was at 108.16/21, up from 107.00/10 late Thursday but off a 26-month high at 108.33.

Chartists say the dollar/mark needs to take out the 1996 high at 1.4955 to extend its rally and move higher to the next significant barrier at 1.5045.

The dollar/yen was also lifted by U.S. rate rise talk but the yen was independently undermined by military tensions between North and South Korea and talk the Japanese government will stop giving budget money to wind up failed mortgage firms.

Traders said if government money to help ease the troubled banking system was to be pulled, there would be greater pressure on the Bank of Japan to maintain its loose credit stance.

The U.S. markets, meantime, have undergone a massive turnaround in sentiment from pricing in one more Feb ease at the start of the year to now discounting a rise of up to 75 basis points in short-term money market rates by the end of the year.

"The dollar is decoupling from bond and equity markets and with a general belief in cyclical divergence in interest rates, it has pushed higher across the board," said Paul Meggyesi, senior currency strategist at Deutsche Morgan Grenfell.

Meggyesi said the capital inflows to the dollar will be evident at these higher yields once the bond market volatility subsided.-Reuter