Currency dealers push dollar up on EMU worry Wednesday June 4 2:46 PM EDT
By Malcolm Davidson
LONDON, June 4 (Reuter) - The dollar lost some of its edge but remained firm against the mark on Wednesday as financial markets sought to decide the impact on Europe's monetary union of the German government's capitulatation to the Bundesbank.
Stock markets ended the day mixed, although the Paris bourse continued to rally following the victory of the new Socialist Prime Minister Lionel Jospin in last weekend's parliamentary election.
Market expectations of a strong U.S. jobs report on Friday and the possible consequences for American interest rates, complicated life for investors on both sides of the Atlantic.
But Chancellor Helmut Kohl tried to lay the government's bruising row with the Bundesbank to rest by declaring that Germany remained on track to qualify for European economic and monetary union (EMU) despite the hole in its 1997 finances.
The dollar hit four-week highs in early trade after Bonn retreated from its controversial plan to revalue reserves to help meet make the grade for EMU against the objections of the central bank.
Although a series of statements by Kohl, Finance Minister Theo Waigel and Bundesbank President Hans Tietmeyer calmed the wobbly foreign exchange market, traders said the fallout from the German battle of wills would reverberate for some time.
``The damage has been done,'' said Teis Knuthsen, economist at First Chicago in London.
``Regardless of today's compromise, the feeling in the market is that the German finance minstry is prepared to do pretty much anything to get its deficit in line.''
By the end of the European trading day, the dollar was quoted at 1.7317 marks and 116.29 yen, compared with 1.7263 marks and 116.06 yen in late trading on Tuesday.
Government bond markets were unsettled for much of the day over concerns about events in Germany and interest rate worries in Britain.
Europe's major stock markets all showed gains in the morning, but London and German screen-based trade slipped into the minus column as Wall Street made a weak start. The Dow was still a few points adrift as European markets closed.
Paris clawed its way back from opening losses as the market waited for Jospin to name his cabinet.
The blue-chip CAC-40 index ended off its highs but still showing a rise of 10.88 points, or 0.41 percent, at 2,635.37. Volume was a heavy 10.01 billion francs.
Traders said the market was enjoying a honeymoon period with the left and bargain hunting helped support prices.
Rhone-Poulencjumped 5.38 percent to 199.8 francs on news that its Merieux anti-aids drug was going to phase two trials in the United States.
London shares ended a choppy session mixed amid continued uncertainty about a possible interest rate rise.
Fears that rates could be tightened by both U.S. and British central banks in the near-term kept many participants out of the market and capped a promising rally, dealers said after an early rise in the FTSE 100 benchmark.
``In the short-term the FTSE looks like it still has room to move higher but there is just to much for the market to worry about, including interest rates,'' one senior dealer said.
The FTSE 100 closed 0.7 of a point lower at 4,557.1, well below an intraday peak of 4,585.9.
Apart from U.S. jobs figures, Friday will also see the first meeting of the Bank of England since being given its independence to set interest rate levels.
A majority of economists polled by Reuters said they believed the bank would exercise its new powers and push up British base rates by 0.25 percentage points to 6.5 percent.
CURRENCIES AT 1600 GMT
The dollar was quoted at 1.7317 marks and 116.29 yen compared with 1.7263 marks and 116.06 yen in late European trading on Tuesday.
STOCK MARKETS -- CLOSING INDICES
LONDON - The FTSE-100 index closed down 0.7 points, or 0.02 percent, at 4,557.1.
PARIS - The CAC-40 closed up 10.88 points, or 0.41 percent, at 2,635.37.
FRANKFURT - The 30-share DAX index closed up 36.1 points, or 1.0 percent, at 3,661.84. In later screen-based trade, the IBIS DAX ended down 4.0 points down at 3,651.59.
PRECIOUS METALS
Gold finished at $342.35, down 50 cents from Tuesday. Palladium ended at $235.00 against $195.00, while platinum closed up $2.00 at $432.00. Silver finished two cents firmer at $4.76.
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