Dollar Gains After G7 Summit, Euro Stocks Fall Steeply

The dollar strengthened against the yen on Monday after the weekend summit of industrialised nations played down US Japan trade friction, but European

bourses fell sharply, suffering from a variety of domestic ills.

The US currency held gains of nearly a yen at midday as dealers breathed a sigh of relief at the absence of a war of words at the summit of the Group of Seven (G7) nations in Denver over Japans ballooning trade surplus with the United States.

But all was gloom in European stock exchanges. London dropped over one percent on fears of higher interest rates and pre-budget nerves, while Frankfurt suffered almost as badly as investors took profits after last weeks record-breaking run.

 

London, Europes biggest bourse, tumbled by 46.9 points to 4,547.0 on the blue-chip FTSE index at one stage as worries over sterlings strength added to the markets woes and depressed the futures market. The futures have been hammered again today and thats pulled the FTSE lower, one dealer said. It seems the market just cant get over its worries about rates and the budget and we just keep on going down.

London has fallen continuously since hitting a new closing high of 4,783.1 10 days ago. Dealers blame the growing expectations of interest rate rises and concern about the possible abolition of tax breaks on dividends for pension funds in the July 2 budget.

We are now five percent off the high, said the head of trading at one brokerage. Obviously we are going to be rocked ahead of the budget but we have come off a long way.

The cheerless outlook was dampened further as investors counted the cost of the pounds 59-month high against the German mark. Its strength is hurting currency-sensitive stocks, such as British Steel Plc , which fell 9-3/4p to 148-1/2 at one point.

In Frankfurt, stocks were down by nearly one percent at lunch-time on profit-taking after the 30-share DAX index hit an all-time trading high on Friday of 3, 798.94 points. It looks like we are set for a period of light consolidation, said one Frankfurt-based trader.

This appears to be profit-taking but it is nothing severe. This is an issue for today in the market, not the start of a correction. Traders said the stronger dollar had helped to underpin the market.

The market is trying to find its feet, said another Frankfurt share trader. But I would be surprised if the DAX fell below 3,760 points.

Theres not enough drive to push the market in either direction. In Paris, shares fell 0.6 percent in quiet trade on the last day of the monthly settlement. Theres no news, nothing going on, a broker said.

On the foreign exchange market, the dollar held most of its gains by midday after hitting peaks of 115.67 yen in early European trade after the G7 summit.

We are holding above the 115-yen level. The NO CARRIERONNECT 1200/REL and the U.S. to continue close cooperation on economic policy and financial markets.

CURRENCIES AT 1100 GMT

The dollar was at 1.7260 marks and 115.45 yen, compared with 1.7298 and 114.58 in late European trade on Friday.

STOCK MARKETS AT 1100 GMT

LONDON - The FTSE-100 index was down 39.4 points at 4,554.5.

PARIS - The CAC-40 was down 17.80 points at 2,739.25.

FRANKFURT - The 30-share DAX index was down 36.62 at 3751.65.

PRECIOUS METALS

Gold fixed at $336.95 against $338.45 at the close on Friday. Silver was down two cents at $4.73.