CURRENCY : Dollar Zooms on Trade News

NEW YORK — The dollar finished Tuesday at its highest levels in 7 1/2 months against the West German mark, fueled by an unexpectedly large drop in the U.S. trade deficit for April, dealers said.

Dealers cited a growing bullishness toward the dollar after news that the deficit, on a seasonally adjusted basis, fell to $9.89 billion from a revised $11.70 billion for March. The market had expected the April shortfall to range between $12 billion and $13 billion.

“More and more people are talking about this as being the turnaround of the dollar,” said Charles Spence of First Interstate Bank.

Gold prices finished mixed after initially being knocked down by the trade news. Republic National Bank of New York said gold was bid at $450.15 an ounce as of 4 p.m. EDT, up from $449.70 late Monday.

The dollar climbed 1.6% against the West German mark, although West Germany’s central bank sold dollars in an attempt to stem the U.S. currency’s rise, traders said.

The dollar also rose 1.7% against the British pound and by slightly less against other European currencies and the Japanese yen.

However, the dollar slipped against the Canadian dollar. Dealers said the dollar’s weakness against its Canadian counterpart stemmed in part from relatively high Canadian interest rates. Also, there is speculation that foreign currencies will continue to be converted into Canadian dollars to finance foreign takeovers of Canadian companies.

Expected Bigger Deficit

Traders said there were no confirmed reports of dollar selling by central banks other than West Germany’s.

Many traders had expected the April merchandise trade deficit to be about $12.2 billion. Instead, the gap proved to be the lowest since December, 1984.

The April trade report--the first since 1985 to state the most recent data in both seasonally adjusted and unadjusted terms--was sharply below expectations on both an adjusted and an unadjusted basis.

“You’ve had a very consistent pattern of improvement,” said David Wilson of Girozentrale New York.

“More and more people are talking about this as being the turnaround of the dollar,” said Charles Spence of First Interstate Bank.

“The statistics were quite a shock to the marketplace,” said Richard Witten, a vice president at Goldman, Sachs & Co.

Witten said some traders concluded that the United States would be able to trade its way out of its deficit, although he said, “I think it’s too early to say that.”

West Germany’s intervention briefly suppressed the dollar’s rise, but the currency rebounded and finished the session at its highs of the day, said Jeff Mondschein, vice president and foreign exchange manager for Merrill Lynch Capital Markets.

In London, the dollar strengthened to $1.7925 to the pound from $1.8165 on Monday. Later in New York, the dollar strengthened to $1.7864 to the pound from $1.8165 late Monday.

Before the announcement of the trade figures, the dollar closed at 125.05 Japanese yen in Tokyo, down from 125.19 on Monday.

Gold Prices Seesaw

Dealers cited the strength of the Japanese economy, and dollar sales by Japanese exporters for the decline.

In London, the dollar traded at 126.20 yen. At the end of the trading day in New York, the dollar rose to 126.55 yen from 125.12 yen late Monday.

Other late dollar rates in New York, compared to late Monday’s rates, included: 1.7496 West German marks, up from 1.7227; 1.4626 Swiss francs, up from 1.4408; 1.2183 Canadian dollars, down from 1.2208; 1,297.50 Italian lire, up from 1,280.25, and 5.8970 French francs, up from 5.8125.

Other late rates in Europe, compared to Monday’s late rates, included: 1.7460 West German marks, up from 1.7241; 1.4615 Swiss francs, up from 1.4424; 5.8840 French francs, up from 5.7265; 1.9600 Dutch guilders, up from 1.9345; 1,292.50 Italian lire, up from 1,281.75, and 1.2162 Canadian dollars, down from 1.2203.

Gold dropped about $4 an ounce immediately after the release of the trade numbers, but recovered toward the end of the day in reaction to strength in oil prices and commodity indexes, said Brian Donohue, a trader for Midland Montagu Metals in New York.

In Hong Kong, where the market closed before the release of the U.S. trade numbers, gold closed at a bid of $452.58, down from $457.99.

The late gold bid price in London was $448, down from $449. The late bid price in Zurich, Switzerland, was also $448, down from $448.50.

On the Commodity Exchange in New York, gold bullion for current delivery rose to $450.60 from $449.60.

Silver bullion traded late in London at a bid $6.91 an ounce, down from $7.02. On New York’s Comex, silver bullion for current delivery rose to $7.040 from $7.025.

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