Mon, 25 Sep 2000, 3:32pm EDT Euro Slips Toward Levels That Preceded Central-Bank Buying By Mark Tannenbaum

New York, Sept. 25 (Bloomberg) -- The euro gave up most of the gains it posted after central banks bought the currency on Friday, as faster economic growth and higher interest rates in the U.S. outweighed efforts to prop up Europe's common currency.

The 21-month-old euro fell to 87.44 U.S. cents, from 87.65 Friday, snapping a two-day rally. It slipped to 94.11 yen, from 94.605 Friday, its first drop in three trading days.

Also working against the euro, U.S. Treasury Secretary Larry Summers said the U.S. still wants a strong dollar, calling into question the U.S.'s commitment to boosting the euro, some analysts said. And Rolf Breuer, chief executive of Deutsche Bank AG, said he doubts the U.S. will again agree to intervene on the euro's behalf, given that the presidential campaign is underway. Still, Group of Seven nations meeting in Prague this weekend said they'd act again to help the euro ``as appropriate.''

``You require not only intervention but a policy shift at the same time to change trends,'' said David Durrant, a currency analyst at Bank Julius Baer. A shift powerful enough to reverse investment flows, such as a U.S. interest-rate cut combined with a euro-zone rate boost, is unlikely, meaning the euro may ``slowly grind lower,'' he said.

The yen rose to 107.58 per dollar, from 107.92 Friday.

The euro surged as much as 4.5 percent against the yen and the dollar Friday, when the European Central Bank, and the central banks of the U.S., Japan, the U.K. and Canada, bought euros. Friday's purchases commenced at a level just above 87 cents per euro, traders and analysts said.

Flows to U.S.

``I don't think people are going to be too aggressive'' in pushing the euro lower, as ``they don't really want to mess with the central banks,'' said Per Norr, a trader at Den norske Bank. Still, ``flows are coming into the U.S., and as long as that's a fact there's not much they can do about the euro.''

More intervention may be ahead in coming days if history is an indicator, analysts said.

Friday's surprise move coincided with the 15th anniversary of the Plaza Accord, in which the U.S., France, Germany, Japan and the U.K. agreed to strengthen other currencies against the dollar. The bout of dollar sales resulting from that agreement was conducted over 27 days, said Steve Barrow, currency strategist at Bear Stearns International in London.

The euro still remains 25 percent lower against the dollar than its debut in January 1999 at $1.17, and 28 percent weaker than its starting level of 132.80 yen.

The currency's gains Friday may be short-lived, analysts said, as the record U.S. economic expansion lures investors from the euro-zone economies.

Growth, Rates

The U.S. will probably grow 5.2 percent this year, compared with 3.5 percent in the euro area, according to the International Monetary Fund. Interest-rate differentials also continue to work against the euro, with U.S. benchmark rates at a nine-year high of 6.5 percent proving more attractive than the euro-zone rate, at 4.5 percent.

The euro posted gains earlier amid growing support in Denmark for adopting the currency. Danes vote Thursday on whether to scrap the krone.

Those opposing the euro lead by 3 percentage points, Gallup said, compared with a gap of as much as 12 points last week. A separate poll by Vilstrup for newspaper Politiken showed support for the euro overtook opposition, with 45 percent in favor and 43 percent against.

A rejection by Denmark may undermine the euro as it may fuel opposition in the U.K. and Sweden and fan resistance to the European Union's plan to include Eastern European countries, analysts said.

Sour Sentiment

A ``no'' vote by Denmark may fuel concern that the 11 euro countries, which are set to welcome Greece into the fold next year, won't be able to persuade the stronger European economies to take on the euro as well, some analysts said.

Apart from Denmark, Britain and Sweden are the two remaining nations among the 15-member European Union that chose to stay out of the euro to start.

``It is possible that a Danish rejection would further sour market sentiment regarding the euro and provide the market with an excuse to test the international authorities' resolve to defend the single currency,'' said Mitul Kotecha, global head of foreign exchange research in London at Credit Agricole Indosuez.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=blk&s=AOc_FPxTvRXVybyBT

-- Martin Thompson (mthom1927@aol.com), September 25, 2000