Franc at three-month low against mark

THE FRENCH central bank was forced to intervene in support of the franc yesterday as gloomy economic news helped to propel the currency to a three-month low against the German mark.

Heavy selling briefly pushed the franc through the psychological level of Fr3.40 to the mark. Its slide mocked the aspirations of those in the French government who believe the franc is on course to supplant the mark as anchor of the European exchange rate mechanism. Edouard Balladur, the Prime Minister, dismissed as ridiculous rumours that France would leave the system altogether.

The French national statistics institute, Insee, said the economy was on course to shrink by 1.2 per cent this year, compared with the government's latest forecast of a 0.8 per cent drop. National output fell by 0.6 per cent in the first quarter of the year.

The gloomy news from France came as receding fears about the German economy helped the Frankfurt stock market to its highest close of the year. The DAX- 30 rose 63.94 points - more than 3.5 per cent - to end the day at 1,783.7. Foreign purchases of German shares helped the mark against the franc.

Alison Cottrell, economist at Midland Global Markets, said the franc's plight might persuade the Bundesbank to cut its Lombard interest rate - the ceiling for market rates - by a quarter point later this month. This would be seen as support for the French, while having negligible effect in Germany.

The pound was little changed. A survey by Dun & Bradstreet showed a rise in British business confidence for the third quarter of the year, at odds with other surveys, which have shown confidence falling back. 'The recovery is gathering steam although it must be judged against the backdrop of the low base of last year's performance,' D&B's Philip Mellor said.

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