Clinton view on rates spurs market

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The Independent Online
President Bill Clinton inspired Wall Street to a gain of more than 40 points at one stage yesterday, saying US long-term interest rates were moderating.

The Dow Jones average had leapt 42 points to 4,194 by late morning thanks to traders' growing confidence that the pace of growth in the US will slow without the need for higher interest rates. Long-term treasury bonds rallied by half a point. But the dollar continued to drift.

"We are doing our best to keep the rates down," Mr Clinton told a conference in Atlanta. "The long-term rates are moderating now. We're going to do our best to keep them that way to sustain growth."

US financial markets, seeing signs of slower growth in some areas of the economy, have come to expect very little additional tightening of monetary policy. This view was reinforced yesterday by the publication of figures showing a plunge in sales of new homes by 14 per cent in February and by 20 per cent on a year earlier.

Mr Clinton's remarks apparently contradicted an earlier speech by Treasury Undersecretary Lawrence Summers at the same conference. Mr Summers said the administration was committed to policies that would keep the dollar strong and stable. Observers read this as a signal of firmness on interest rates.

A US Treasury spokeswoman said the President and Mr Summers did not have conflicting views, but added: ``I'll have to get back with the explanation.''

The dollar, weak in Europe all day after the Federal Reserve's decision not to increase the key short-term interest rate on Tuesday, hovered just above 88 yen but fell below 1.38 marks.

There is little hope of a cut in German interest rates after the Bundesbank council meets today.

The Prime Minister said yesterday that central banks could no longer control currency markets. "Ten years ago, central bank intervention could be decisive. That is no longer the case and a different approach is needed," Mr Major told a London conference on Britain's role in the world.

His call for a different approach follows statements from other European political leaders on the need for international monetary co-ordination. Recently France's presidential candidates pledged renewed international efforts to limit the world currency turbulence. Front-runner Jacques Chirac called for more multilateral supervision by the International Monetary Fund.

The issue will be one of the subjects for discussion when finance ministers and officials from the G7 industrial countries meet in Washington at the end of April.

Malcolm Barr, currency economist at Chemical Bank, said: ``If the G7 meeting only produces more jawboning, there is a danger it could send the dollar lower again."