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. Last Updated: 07/27/2016

Market Rate Speculation Pushes Down the Dollar

LONDON -- The dollar touched a two month low against the Deutsche mark Monday as speculation grew that German money market rates could rise, while leading European exchanges closed strongly in line with Wall Street.


The dollar later bounced back slightly on short-covering at the European close but generally remained weighed down by comments from Bundesbank President Hans Tietmeyer


These, along with stronger than expected German wholesale price data, encouraged a belief that the central bank could nudge up rates in the coming months.


After a day of mood swings, French, German and British shares closed strongly as Wall Street made solid gains while Italian stocks romped almost 3.5 percent ahead as euphoria over European monetary union gripped the market.


But turnover was thin on many exchanges due to doubts over how robust Wall Street's rise was.


On the foreign exchange markets, the dollar slipped to 1.7555 marks, its lowest level since July 11, after Tietmeyer said it was theoretically possible for the Bundesbank to change interest rates before a decision on emu membership was made in the spring of 1998.


After that, "the room to maneuver gets narrower," the Bundesbank president said.


By the European close the dollar had recovered some of its losses to 1.7608 marks but remained below Friday's close in European trade at 1.7715.


"The market has overdone the reaction to Tietmeyer's rate comments. The mark's coming back a bit on the dollar and yen," said a Japanese bank dealer. "But he has hinted at higher German rates and recent German data has supported that view which is still quite bullish for the mark."


In Asia, markets closed mixed, with share prices rising in Hong Kong for the second consecutive session.


The Hang Seng Index, the Hong Kong market's key indicator of blue chips, rose 160.19 points, or 1.1 percent, closing at 14,630.65. On Friday, the index had gained 162.16 points.


Brokers said investors continued to buy stocks in reaction to Friday's gains on Wall Street, when the Dow Jones industrial average rose 81.79 points to close at 7,742.97.


They said economic reforms proposed by Chinese leaders at the current national party congress in Beijing also boosted the Hong Kong market.


Kent Rossiter, senior institutional sales manager at Nikko Securities Co. (Asia) Ltd., said shares of Chinese-backed companies had "a pretty good day."


In Taiwan, a strong sell-off in technology shares pushed the key index sharply lower in active trading. The stock exchange's Weighted Stock Price Index fell 161.82 points, or 1.8 percent, to close at 8,932.02.


Philippine shares also ended lower, plagued by political uncertainties and the continuing volatility of Asian currencies.