Dollar Rises Amid Flurry of Buying : Market Overview

* The dollar rose against most major currencies as mounting pressure on Germany to lower its interest rates prompted a flurry of mark selling and dollar buying. The dollar closed at its highest against the German mark in more than three weeks.

* Treasury bond prices fell despite good news on inflation as investors sold the securities because of factors unrelated to the economy.

* Stocks drifted through an indecisive session, making little headway after the rally of the past two sessions.

Currency

“The mark is just starting to fall out of favor and people are starting to buy everything else in sight,” said Ziggy Zborowski, a trader at Bank Leumi Trust Co. in New York.

The dollar surged in New York to as high as 1.454 German marks during the day and finished at 1.449 marks, up from Thursday’s close of 1.421.

It was the U.S. currency’s strongest showing since Aug. 19, when the dollar finished at 1.4535 marks.

Germany’s Bundesbank raised interest rates in July to a level about 6 percentage points higher than U.S. rates. The move was intended to keep inflation under control.

As a result, the mark rose against major currencies while knocking the U.S. dollar to record lows and spreading turbulence to other currencies. High interest rates make a currency more attractive to investors, who get a bigger return on their money.

Against the Japanese yen, the dollar rose to 124.25 yen from 123.53 yen Thursday.

But the dollar’s rise Friday gave little relief to the weaker European currencies, as the mark held firm against sterling and the Italian lira.

The Group of Seven leading industrial nations, whose officials meet regularly on monetary matters, are scheduled to gather in Washington on Sept. 19.

“The dollar is benefiting from the belief that the G-7 will launch an assault against the mark,” Lehman Bros. analyst Lisa Finstrom said.

The meeting of the G-7--the United States, Britain, Germany, France, Japan, Italy and Canada--comes after more than a week of volatility in currency markets.

A senior Japanese Ministry of Finance official said the G-7 is likely to discuss coordination of currency markets. A British official said London is determined to seek ways to ease currency tensions at the meeting. Most dealers said they expect G-7 ministers to pressure Germany’s Bundesbank to lower interest rates. The wide gap between German and U.S. rates was blamed for pushing the dollar to new postwar lows late last month.

The volatility in the currency market has also been pumped up by uncertainty over whether France will ratify the Maastricht treaty on European unity.

Credit

The price of the Treasury’s main 30-year bond fell 9/16 point, or about $5.63 per $1,000 in face amount. Its yield, which rises when prices fall, was 7.29%, up from 7.24% late Thursday.

The Labor Department reported that prices paid by wholesalers advanced a barely perceptible 0.1% in August despite big increases in the cost of fruits and vegetables.

A report indicating low inflation normally boosts the bond market, but investors appeared to ignore the news.

“At this point, low inflation is a foregone conclusion,” said Anthony Chan, a senior economist at Barclays de Zoete Wedd Securities Inc.

Instead, investment houses sold Treasury bonds as part of a hedging strategy related to the flood of new corporate bonds sold this week. Hedging is a technique that seeks to mitigate the risk that the value of an investment, such as a corporate bond, will go down.

The federal funds rate, the interest on overnight loans between banks, was unchanged from late Thursday at 3%.

Stocks

The day began with a favorable, but expected, producer price index report.

Analysts said that news reinforced the Street’s optimism that inflation remains subdued. Similarly upbeat news is expected next week in the consumer price index report for last month.

Stock traders seemed to have other uncertainties on their minds, however, including the recent tumult in European interest rates and currency markets.

The Dow Jones average inched ahead 0.54 to 3,305.70, finishing the holiday-shortened week with a net gain of 23.77 points.

However, declining issues nosed out advances by a very slight margin on the New York Stock Exchange. Big Board volume retreated to 180.56 million shares from Thursday’s 221.99 million.

In the meantime, prices plunged on the Tokyo stock exchange as a survey by the central bank painted a bleak picture of Japanese business sentiment. The 225-issue Nikkei average fell sharply, losing 800.78 points, or 4.24%, to close at 18,107.69.

Elsehere in overseas trading, the Frankfurt bourse ended a thin trading day virtually unchanged, with the 30-share DAX average closing just 0.87 points weaker at 1,527.80.

Prices rose on the London stock exchange amid calmer currency markets and news that British inflation was at a four-year low of 3.6%. The broad-based Financial Times 100 average rose 30.3 points, or 1.3%, to 2,370.9.

Among the U.S. market highlights:

* National Semiconductor was the volume leader, down 1/8 to 11 7/8 on turnover of more than 2.29 million shares after rising 7/8 on Thursday.

* Auto stocks were steady to lower in active trading. General Motors dropped 3/8 to 33 5/8; Ford Motor fell 1 1/8 to 40 1/4, and Chrysler was off 1/8 to 21 3/8.

* Biomet, traded in the NASDAQ market, fell 3 5/8 to 17 7/8. Analysts noted disappointment over the company’s earnings for the fiscal quarter ended Aug. 31, which came in at 13 cents a share against 10 cents a share in the corresponding period a year earlier.

* Octel Communications, another NASDAQ stock, jumped 2 to 22 3/4. The company, which produces voice information-processing equipment, announced an agreement to acquire Tigon Corp., a voice-message service bureau, from Ameritech.

American depositary shares of Japanese companies declined broadly after the Tokyo market fell overnight, prompting fears that a rally in Japan since mid-August might have run its course.

* Matsushita Electrical fell 6 to 96; Kyocera 2 5/8 to 59 5/8; Hitachi 1 7/8 to 63 1/2, and TDK 1/2 to 28 1/4.

Commodities

The forecast for a wheat and soybean harvest larger than last month’s estimate sent futures prices lower on the Chicago Board of Trade.

Wheat for delivery in September settled 5.75 cents lower at $3.213 a bushel. On other markets, livestock and meat futures declined, energy was higher, and precious metals were lower.

Elsewhere, energy futures were higher on the New York Mercantile Exchange, with light, sweet crude oil for October delivery rising 8 cents to $22.01 a barrel.

Precious metals declined at the Commodity Exchange in New York, with December gold down $1.30 at $340.90 an ounce and December silver down 2.5 cents at $3.707 an ounce.