Pressure grows on dollar as odds lengthen against US-Japan pact

THE DOLLAR came under fresh pressure yesterday after the appointment of a socialist prime minister in Japan was seen as lengthening the odds on a US-Japan trade pact at next week's world economic summit.

Mickey Kantor, the US Trade Representative, was downbeat about the prospects for an agreement, but Hiromoto Seki, the senior Japanese diplomat in New York, left open the possibility that some trade issues could be resolved by the summit.

The US currency sank to a new post-war trough of Y98.70 before finishing in London at Y98.90, a loss of Y1.27 on the previous London close.

The dollar also eased slightly to DM1.5837 after Tomiichi Murayama was selected as Japan's new premier.

Despite the decline of the dollar, Wall Street was steady, with the Dow-Jones Index up more than 20 points before the gain was pared to 6.48 at 3,676.12 by mid-afternoon.

The FT-SE 100 index of leading shares also continued to rally, climbing 37.3 to a closing 2,946.3 after the Bank of England said its floating rate note auction had been covered a better-than-expected 2.72 times.

The US Treasury market also fared better than in recent days with the benchmark 30-year bond trading little changed.

Fears of higher US rates increased after official figures showed that strong consumer spending pushed up the estimate of economic growth in the first quarter to 3.4 per cent. A month ago, the US Commerce Department estimated the first-quarter expansion at 3 per cent.

In Germany, the Bundesbank shaved its Repo interest rate from 5 to 4.96 per cent.

The London Business School predicted the economy would grow 3 per cent this year before slowing to 2.3 per cent next year as tax increases and higher interest rates bite.