Banks on sidelines as dollar hits post-war low

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THE DOLLAR edged below 100 yen to a post-war low yesterday as central banks held back from a repeat of Friday's concerted intervention in the currency's support.

The Bank of Japan bought dollars during Tokyo trading, the US currency having fallen to Y99.50. The dollar flirted with Y100 for most of European trading, after which it closed at Y99.93. Some dealers said Saturday's resignation of the Japanese Prime Minister, Tsutomu Hata, had deterred them from selling dollars aggressively.

The pound rose slightly against the dollar but fell by more than a pfennig and a half to an eight- month low of DM2.4475 against the German mark. The pound fell further against the mark in thin New York trading after the European markets had closed.

Neil Mackinnon, chief economist at Citibank, said the markets had spent the day probing the downside on the dollar. He added that plenty of dealers had long dollar positions, which could presage a sharp fall to around Y95.

Another rise in US interest rates to defend the currency seemed less likely after figures were released showing a 0.7 per cent drop in house sales in May to an annual rate of 4.09 million. Economists said the figures were consistent with the recovery slowing to a pace that would not put serious upward pressure on inflation.

The stock market endured a roller-coaster day. The FT-SE index of 100 leading London shares was more than 30 points down in early trading but turned around - helped by a strong rally in the gilts market and some institutional buying - to end the day 23.3 points higher at 2,899.9. But analysts warned that the market remained vulnerable to further turmoil on the currency markets.

The gilts market was buoyed up by hopes that the Chancellor of the Exchequer would today revise down his Budget forecast for government borrowing from pounds 38bn to between pounds 32bn and pounds 35bn.