CURRENCY : Dollar Gains on Mark Despite Intervention

NEW YORK —  The dollar rose in domestic dealings Thursday despite concern over an upcoming report on the nation’s trade deficit.

Gold prices fell in domestic trading after rising overseas. Republic National Bank in New York quoted a late bid of $438.35 for an ounce, down from Wednesday’s late bid of $440.25.

The foreign exchange market largely ignored a hike in a key lending rate by several U.S. commercial banks as the dollar settled above the psychologically important barrier of 1.85 West German marks despite central bank intervention. The dollar had not closed at these levels since last August.

Traders said the market is focused primarily on the Commerce Department’s release today of U.S. merchandise trade data for May. Concern over the report also dominated the currency markets in Europe, where the dollar finished mostly higher in light dealings.

“The market is still bullish (about the dollar) even if the number does come in at $11.5 billion,” said Cynthia Johnson, vice president and foreign exchange manager at Lloyds Bank PLC’s North American office in New York.

Fed Intervention

The trade deficit registered a narrow $9.9 billion in April, but the consensus in the market is that a single-digit figure is unlikely for May.

Traders said the Federal Reserve stepped in when the dollar reached 1.85 West German marks in an attempt to stem its rise. One trader said the U.S. central bank sold “quite a substantial amount” of dollars during the intervention.

A trader in Frankfurt predicted “massive” intervention by both the West German and U.S. central banks in the event of a lower-than-expected deficit, which would help push the dollar higher.

Several U.S. banks announced a half a percentage point increase in the prime rate, putting the key lending rate at 9.5%, its highest level in more than two years. But there was little reaction in the market.

“The prime rate hike had been pretty much expected,” said Michael Malpede, a senior currency analyst at Refco Group in Chicago. “The timing may have been a bit unusual, but it is a lagging indicator.”

Generally, however, higher interest rates at home can be bullish for the value of the dollar because they attract more foreign investment to the United States.

In Tokyo, where trading ends before Europe’s business day begins, the dollar rose 0.48 yen to a closing 132.95 Japanese yen. Later in London, it edged up to 133.12 yen. In New York the dollar finished at 133.18 yen, up from 132.69 Wednesday.

In London, the British pound fell to $1.6890 from $1.6920 late Wednesday. In New York it cost $1.6875 to buy one pound, cheaper than Wednesday’s $1.6948.

Other late dollar rates in New York, compared to late Wednesday: 1.8507 West German marks, up from 1.8424; 1.5340 Swiss francs, up from 1.5285; 6.2355 French francs, up from 6.2140; 1,370.38 Italian lire, up from 1,365.88, and 1.2095 Canadian dollars, up from 1.2072.

Other late dollar rates in Europe, compared to late Wednesday: 1.8475 West German marks, up from 1.8460; 1.5320 Swiss francs, up from 1.5313; 6.2315 French francs, up from 6.2265; 2.0815 Dutch guilders, down from 2.0835; 1,367.75 Italian lire, unchanged, and 1.2085 Canadian dollars, up from 1.2083.

On New York’s Commodity Exchange, an ounce of gold fetched $438.70, down from $440.40.

In London, the metal rose to a late bid of $439 from $437.25 late Wednesday. In Zurich, Switzerland, the bid was $441, up from $435.50 late Wednesday. Earlier in Hong Kong, gold rose $2.25 to close at a bid of $440.53.

Silver traded on the New York Comex finished at $7.280 an ounce, up from Wednesday’s $7.165. Earlier in London, the metal was buoyed by speculative dealings, rising sharply to a late bid of $7.35, an eight-month high, from $6.98 bid late Wednesday.

Tables, Page 6