950804

Dollar unable to break

highs in Europe

LONDON: The dollar edged higher throughout the morning session but was unable to break through the week's highs ahead of the release of U.S. labour data at 1230 GMT, dealers said.

Mark buying for yen propelled the dollar beyond 91 yen in early morning trade, but dollar/yen stopped at exactly 91.20 its peak after Japan announced deregulatory steps and the U.S and Japanese central banks intervened jointly on Wednesday.

At 1030 GMT, the dollar was quoted at 91.13/23 yen and 1.3967/77 marks compared with 90.35/45 and 1.3892/02 in late European dealings on Thursday.

"It's going to be determined by the bond market. If the report is weak, say below the 100,000 to 120,000 level, it will support the bond market and lead to a higher dollar," said Tony Norfield, an economist at ABN Amro in London.

A Reuter poll of economists forecasts non-farm payrolls to have risen 111,000 in July, down from a 215,000 increase in June. The unemployment rate is seen rising to 5.7 percent compared with 5.6 percent previously.

However, many analysts said that the dollar's reaction would be choppy because the dollar could initially respond to interest rate prospects but then decide to track the bond market.

The currency market is particularly sensitive to bonds now because dealers are waiting to see if the Japanese package announced earlier in the week will actually lead to more foreign bond investments by Japanese institutions.

The quarterly refunding next week also looms. Although no immediate pick up in Japanese appetite for Treasuries is expected at the refunding, analysts will be looking to see if they express more interest to buy longer-dated bonds.

"I don't think there will be a sudden outflow of capital but data show that more money is going abroad...Treasuries or high-yielding European markets," said a Japanese bank dealer.

Japanese exporters were seen selling above 91 yen as many have still not procured enough dollars for the final quarter this year, dealers said. Exporters were seen to have had targets of around 85 yen this quarter but may be readying to move that target up to around 90 after the latest bounce, they said.

Norfield pointed out that a three-month forward contract for dollar/yen gives a discount of 1.20 yen. If exporters had set a target of 90 yen, that would translate into a spot rate of 91.20 yen and would explain why it has been capped at that level.

Although dealers and analysts agreed that dollar/yen had found a floor, they were uncertain about dollar/mark.

Despite a surge in dollar/yen, dollar/mark has still not broken free of its 1.3700-1.4070 marks trading range and a break to either side of these parameters was needed for interest to pick up, dealers said.

The mark initially rose to as high as 65.34 yen this morning before easing back to 65.18/21 at 1056 GMT compared with late Thursday's 65.06/09.

The dollar was quoted at $1.6030/40 versus yesterday's $1.6060/70, and was at 1.1538/48 Swiss francs compared with 1.1490/00.-Reuter