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Dollar Rebounds Somewhat in Choppy Trading

June 19, 1996

NEW YORK (AP) _ The dollar finished higher against most key currencies in volatile trading Wednesday after the Bank of Japan denied a Japanese news story that it might raise interest rates as early as July.

Foreign exchange traders said the dollar also was helped by new doubts about a Japanese government report depicting a powerful first-quarter economic surge, the main reason for the U.S. currency’s slump on Tuesday.

But traders said the dollar’s seesaw behavior during the day reflected new uncertainty in the longer-term direction of the currency, which has been on a relatively steady climb against the Japanese yen and German mark for months.

``Right now there’s still disbelief and a little bit of confusion,″ said Joseph Klettner, a technical analyst of foreign exchange at Chase Securities in New York. ``As this confusion lingers on, you’ll probably get a bit of a choppy market here.″

As of 4 p.m. in New York, the dollar traded at 107.85 yen, up slightly from 107.75 yen Tuesday. The dollar also traded at 1.5210 marks, up from its two-month low of 1.5123 Tuesday. The British pound finished unchanged for the second straight day at $1.5435.

The dollar began the trading day by rallying in Asia and Europe as traders skeptically reassessed the Japanese Economic Planning Agency’s Tuesday report on first-quarter performance, which showed an annual growth rate of 12.7 percent in the first quarter, the fastest in 23 years.

They said much of the strength was concentrated in government public works spending and housing construction, not necessarily enough to help Japan pull out of prolonged slump. Some traders also noted that the report was inconsistent with other evidence of a much milder economic recovery in Japan.

``There’s just a realization that it is old data,″ said Jack Griffin, a vice president of foreign exchange at Fuji Bank Ltd.’s New York branch. ``More recent data hasn’t confirmed it.″

But the dollar dropped abruptly in early New York trading after the Kyodo news service reported the Bank of Japan had concluded the data was strong enough to reconsider its interest rate policy, and that it might raise rates next month.

Japan’s central bank has kept its discount rate, the loan fee to banks, at a record low of 0.5 percent since September to help stimulate borrowing and spending to promote economic recovery. The low rate also has helped depress the yen’s value by making assets denominated in yen less attractive.

The Bank of Japan quickly denied the Kyodo report, saying nothing had been decided and that it was continuing to ``carefully watch the recovery situation.″ Traders who had been selling dollars then began to bid the dollar higher again.

``The big exciting thing today was dollar-yen, and everything else took a back seat,″ said Peter Gorra, vice president at the New York branch of Banque Indosuez. ``That report came out and they pushed the dollar down, then it was denied and that pushed the dollar right back up.″

Other late dollar rates in New York, compared with late Tuesday: 1.2520 Swiss francs, up from 1.2458; 5.1560 French francs, up from 5.1340; 1,532.50 Italian lire, down from 1,544; 1.3679 Canadian dollars, down from 1.3683.

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