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Dollar muted in 1999's final trading session

NEW YORK: The dollar drifted sideways against Europe's single currency and the Japanese yen in early U.S. trading on Friday as U.S. financial markets got set to wrap up the last trading day of the century.

With European and Japanese financial market trading already wound down and many U.S. trading desks working with skeletal staffing, the dollar wandered in tight ranges as dealers expected little activity in the hours ahead.

While extremely thin year-end trading volumes could make for volatile price action, many dealers were sitting on their hands with little trading to be done.

"You will see maybe a wild swing that could be caused by one or two individuals for squaring purposes, and then back to basics," said Fortis vice president John Schein.

"By the number of trades we saw yesterday, today is going to be even more restricted," Schein added.

Many U.S. dealers had finished up trading early to avoid contracts with a settlement date that would land in the changeover between 1999 and 2000, holding off to see if any Y2K computer bug-related problems occur.

And trading will likely fizzle out nearly completely by 1:00 p.m. (1800 GMT) when U.S. stock and bond markets are scheduled to close for the holiday weekend, dealers said.

After a tiny flurry of activity as New York kicked off its final trading session of 1999, the euro EUR stood nearly unchanged from Thursday night's close at $1.0080.

The dollar was similarly stable against the Japanese yen JPY, winding sideways from its prior close near 102.40.

Even the surprise news overnight that Russian President Boris Yeltsin had resigned failed to give the currency market any momentum. Yeltsin handed over power to his prime minister, Vladimir Putin.

"Surprisingly, even that didn't have any impact because there's just nobody trading: very, very little going through the market right now," said William Bertha, vice president at Mellon Bank in Pittsburgh.

While Europe's fledgling currency floated near the upper end of its narrow overnight range, its proximity to lifetime lows below $1.00 reflected the euro's struggles in its tenuous first year of life.

The euro, which hit its highs soon after its January debut, has fallen about 14 percent against the dollar and about 22 percent versus the yen as concerns over Europe's lagging economic recovery and structural reform clouded its outlook.

"We expect that the euro will close the year with a soft tone, we will not be surprised if that pressure continues on the euro as we start the next year," said Schein.

For the time being, dealers said the market's lack of momentum would keep the euro trapped well below $1.01.

The dollar drifted near its lows against the yen, but fear that the Bank of Japan might intervene to curb the strength of the Japanese currency would likely keep the dollar propped above the 101.90-102 support area, dealers said.

The BoJ bought dollars for yen in currency markets last Friday to dampen the ascent of the yen, which Tokyo worries could bite into Japan's nascent economic recovery by lifting the price of Japan's exports.-Reuters