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Recoups from early weakness to end mostly higher

July 31, 1997

NEW YORK (AP) _ The dollar recovered from an early selloff to end mostly higher Thursday on stronger-than-expected U.S. economic data, more weakness in Europe and unfounded rumors of a coup in Thailand.

Traders also bought dollars ahead of the Labor Department’s report Friday on July unemployment, a sensitive barometer of interest rate and inflation trends.

The report was expected to show a continuation of the steady and non-inflationary growth in the U.S. economy that has helped underpin the dollar for months.

``The dollar is still firm and strongly in demand,″ said Kevin Lawrie, vice president of foreign exchange at Mellon Bank in Pittsburgh. Nonetheless, he said, few traders were betting heavily on further dollar gains until the unemployment report was released because ``there could always be a surprise.″

The dollar settled at 118.59 yen in New York, up from 118.57 Wednesday. The dollar cost 1.8384 marks, up from 1.8370.

The pound rallied broadly, indirectly helping the dollar gain against the yen and mark. Sterling cost $1.6420 in New York, up from $1.6287.

The dollar weakened early in Asian dealings after a senior official of Japan’s auto industry suggested the U.S. currency wouldn’t rise much further than its present level.

The remarks at a Tokyo lunch by Takeo Tominaga, vice chairman of the Japan Automobile Manufacturers Association, pushed the dollar below 118 yen to an intraday low of 117.58 yen.

Tominaga’s views were considered significant because the dollar’s strength against the yen has been a source of increased U.S.-Japan trade friction, mainly in the automaking industry. U.S.-based car makers have been increasingly complaining that the high dollar is hurting their ability to compete.

The dollar reversed course later in European dealings when the Dutch central bank left a key short-term interest rate unchanged, defying expectations it would raise rates to help strengthen the guilder.

The Dutch decision reinforced a prevailing view that interest rates in Europe are likely to remain low because of the continent’s economic fragility and high unemployment. The French government further added to the picture of weakness, announcing that the June jobless rate climbed unexpectedly to 12.6 percent from 12.5 percent in May.

Later the dollar got a further boost when the Commerce Department reported the economy grew 2.2 percent in the second quarter, stronger than expected.

Traders also bought dollars on July data from the Chicago regional association of purchasing managers, considered a harbinger of the national association’s data to be released Friday.

The Chicago report showed a decline in area business activity but a sharp jump in prices to the highest level in two years. The advance was viewed as a possible sign of inflationary pressure that increased chances the Federal Reserve will raise rates at its August meeting. Higher rates tend to enhance a currency’s value.

``With the Chicago purchasing report looking good and the prices component up in an unexpected fashion, the dollar went bid,″ said Bob Near, vice president of foreign exchange at the Bank of New York. ``The silly rumors of a Thai coup that hit the market also propelled the dollar.″

Thailand has been pummeled in recent weeks by economic turmoil and a sharp devaluation in the baht currency that has spread to other economies in Southeast Asia. The instability has indirectly lent support to the dollar as a safe-haven currency.

Other dollar rates in New York, compared with Wednesday: 1.5113 Swiss francs, down from 1.5122; 6.1990 French francs, up from 6.1928; 1,793.00 Italian lire, up from 1,789.50; 1.3784 Canadian dollars, down from 1.3810.

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