Pound closes at 10-week high against the mark

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THE POUND closed above DM2.45 against the mark yesterday for the first time since base rates were cut to 6 per cent in late January. Dealers remain optimistic about British economic prospects, while Wednesday's small cut in German interest rates was seen as pointing to further - and larger - reductions to come, writes Robert Chote.

The Spanish peseta came under selling pressure ahead of a crisis meeting tomorrow of the ruling Socialist Party's executive committee. The party has been split by a financial scandal, which may force the prime minister Felipe Gonzales to resign.

The peseta lost its position at the top of the exchange rate mechanism grid, closing at 71.86 pesetas to the mark. Dealers reported that the Bank of Spain had launched a support buying operation, with the Portuguese following suit to buy escudos at 93 to the mark. The peseta's weakness was compounded by a holiday in Madrid.

Alison Cottrell, economist at Midland Global Markets, said the departure of Mr Gonzales as party leader could precipitate serious ERM tensions, by heralding the possibility of an early election accompanied by speculation of a devaluation.

The French franc was little moved by the Bank of France's decision to leave its interest rates untouched, despite forecasts of a cut. The intervention rate remains at 9.1 per cent.

Edouard Balladur, the French prime minister, told parliament that he was committed to a strong franc. He said a bill would be submitted to make the Bank of France independent of day-to-day political control.

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