950823

German rate move fails

to excite markets

LONDON: Confirmation that German interest rates are on the slide as the economy slows strengthened the case for the dollar on Wednesday but European markets moved only marginally in response.

The dollar bounced above 1.49 marks after the Bundesbank announced a cut in its money-market repurchase rate to 4.39 percent from 4.45 percent. It was the second cut in a month and focused renewed attention on the Bundesbank's council meeting on Thursday.

Traders and analysts think the slide in the repo rate is leading up to a cut in the four percent discount rate, although only a few believe the central bank will act as early as this week -- although a fall in money supply announced on Tuesday may be a sign that the economy is weakening rapidly.

Bundesbank President Hans Tietmeyer was quoted in a Japanese newspaper as saying he would not exclude room for manoeuvre in reducing rates. He also said German inflation and the dollar were moving in the right direction.

The U.S. currency ran into a barrier at 1.4923 marks, not far off the resistance level of 1.4930 which marks the six-month high it hit a week ago after the long-term currency tide was turned by concerted central bank intervention.

The dollar fell back to 1.4845 marks by 1100 GMT, almost unchanged from 1.4852 in Europe late on Tuesday but down from a New York close of 1.4870.

Dollar/yen rose on the dollar/mark's coat-tails, but also baulked at resistance after an attempt at 97.36 and eased back to around 96.60.

There was little market reaction to the U.S. Federal Reserve's decision overnight to hold its interest rates steady and market minds were concentrated on the prospect of lower German rates, which should aid the dollar's long-term recovery.

Lower rates in Germany would reduce the attractiveness of mark-based assets and help pull down the powerful mark, thus helping hard-pressed German exporters.

"The repo rate cut this morning leaves open the chance that the Bundesbank could cut the discount rate tomorrow," said Howard Archer, research manager at National Westminster Bank in London. But he, like most analysts polled, believed the Bundesbank was unlikely to lower rates after the meeting.

Analysts say a dollar/mark rate of 1.50 is in sight near-term though they are split over whether Germany must cut official rates to give the U.S. unit the ammunition it needs.

European stock markets had a lacklustre morning, with London and Paris losing a few points while Frankfurt rallied uncertainly into the plus column.

Strategists and dealers said the London market, which hit a year's high on Tuesday, maintains its bullish undertone while waiting for a lead from Wall Street.

CURRENCIES AT 1100 GMT:

The dollar was quoted at 1.4845 marks and 96.66 yen, compared with 1.4852 marks and 96.60 yen in late European business on Tuesday.

STOCKS:

By 1100 GMT the Financial Times-Stock Exchange index of 100 leading British shares had fallen 5.6 points to 3,524.6.

In Paris, the CAC-40 share index dropped 4.08 to 1,959.28.

The 30-share DAX index in Frankfurt was up 3.20 at 2,262.06.

PRECIOUS METALS:

Gold was fixed at $383.45 an ounce, up 35 cents from Tuesday's close.-Reuter