FOCUS - Mark unsettled, Euro shares mixed Tuesday June 3 12:44 PM EDT
By Roger Jeal
LONDON, June 3 (Reuter) - The mark put on a shaky performance on Tuesday amid market concern that a single European currency to replace it could be a weakling in comparison.
French shares, however, added to Monday's surprise gains after the Socialist-led victory in the weekend parliamentary elections.
Elsewhere, the London stock market slipped on fears of higher interest rates, while the Frankfurt bourse was higher.
The Bonn government backed down in a row with the Bundesbank over plans to revalue the central bank's assets to help Germany qualify for European economic and monetary union (EMU).
This led analysts to question again how Germany could prevent more countries making the grade for the euro currency -- which would potentially weaken it -- if Bonn continued to struggle to meet the strict economic qualification criteria itself.
It now faces another 10 billion mark ($5.8 billion) hole to fill in the 1997 budget.
``The question is how will Germany meet the three percent target,'' said Julian Jessop, an economist at Nikko Europe.
Under the European Union's Maastricht treaty, the reference level for budget deficits to qualify for EMU is three percent of gross domestic product.
``A soft EMU, with Italy in at the start, is foremost in the market's mind at the moment,'' Jessop added.
The mark slipped to around 983.10 lire from 983.50 in late European trading on Monday.
But the Swedish crown was little changed against the soft mark after news that Sweden will not be on the starting line for EMU in 1999, which was in line with market expectations.
The mark traded around 4.4990 Swedish crowns versus 4.4985 before the afternoon announcement and 4.5130 late on Monday.
The dollar, meanwhile, was underpinned by market speculation that key U.S. jobs data for May, due on Friday, could be strong, boosting prospects for higher interest rates next month.
The French franc, which had hit a low for the year of 3.3860 per mark after the election results, traded around 3.3730 against the unsettled German currency.
Market perceptions that the left's victory in the French parliamentary poll could lead to broad membership of a euro currency from the planned 1999 start helped the dollar hit a morning high of 1.7330 marks.
Socialist Elisabeth Guigou, tipped for office in the new Paris government, said her party would respect the start date for EMU.
Traders said if a broadly-based euro was launched on time without really tough measures to back it, rather than a delay which could prompt funds to flood back into the mark, it would be good news for the dollar.
``We know the Socialists want to go ahead on time but we know they're not so committed to actually meeting the criteria themselves -- that's underpinning the dollar,'' said Thomas Rayner, international economist at SGST.
But some currency analysts said the market could be underestimating the chances of a delay.
``The conflicts and inconsistencies in this whole project have never looked greater. The risk for the market is that prospects for delay are not treated seriously enough,'' said David Coleman, chief economist at CIBC Wood Gundy in London.
French stocks initially rose around one percent as investors and traders gave the new government the benefit of the doubt while awaiting details of its programme.
But they slipped back by mid-afternoon, as Wall Street lost ground in early New York business, before rallying again as U.S. blue chips did likewise.
The London stock market, Europe's biggest, opened steady. But with an eye on the new British Labour government's first budget on July 2, it later slid on interest rate fears ahead of a key British central bank monetary meeting on Thursday and the U.S. jobs data, before trimming its losses.
``The closer we get to the Friday and the U.S.(unemployment) numbers, the more the market will start worrying about a Fed (U.S. Federal Reserve) rate hike,'' the head of trading at a large brokerage said.
``The Dow has been quite resilient to bad news but a strong jobs number this week could finally push the U.S. over the cliff.''
On Wall Street, the Dow Jones industrial average reversed early losses to show a gain of nine points or 0.12 percent in the first hour of trading after Monday's loss of 41.64 points.
CURRENCIES AT 1430 GMT
The dollar was quoted around 1.7265 marks and 116.25 yen, compared with 1.7266 and 116.63 in late European trading on Monday.
STOCK MARKETS AT 1430 GMT
LONDON - The FTSE 100 index was down 12.6 points or 0.28 percent at 4,550.2 but well above its lows.
PARIS - The CAC 40 was up 16.09 points or 0.62 percent at 2,617.54.
FRANKFURT - The 30-share DAX index ended floor trade up 20.12 points or 0.56 percent at 3,625.74. It extended its gains to around 3,646 in after-hours electronic trading.
PRECIOUS METALS
Gold was fixed in the afternoon at $343.55 an ounce, down 25 cents from the morning and compared with the previous London close of $344.05. Silver was steady at $4.77.
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