New Concerns About U.S. Financial System : Dollar Retreats, Gold Prices Rise

The dollar fell against other major currencies in thin U.S. trading Monday amid renewed concerns about the American financial system.

Currency and bullion markets in Europe remained closed as part of a long Easter weekend; they resume trading today.

Gold prices, meanwhile, advanced in New York. Republic National Bank quoted gold as of 4 p.m. EST at $324.75 an ounce, up $4.75 from Thursday’s late bid. All major gold markets were closed on Good Friday.

Dealers said the dollar came under pressure after Bevill, Bresler & Schulman Asset Management, a Livingston, N.J.-based dealer of government securities, filed for protection under federal bankruptcy laws.

ESM-Type Problems

Traders said the filing conjured up the problems last month when ESM Government Securities collapsed. ESM’s failure forced an Ohio savings and loan association that had dealt with ESM to close, sending shock waves through Ohio’s banking system.

In early trading, the dollar was at about 3.1850 West German marks but then fell 3 pfennigs after the Bevill, Bresler announcement, traders said. The dollar closed at 3.1260 marks, down nearly 5 pfennigs from 3.1730 marks late Friday. There are 100 pfennigs to a mark.

James T. McGroarty, vice president of Discount Corp., said that the dollar overall “didn’t fall precipitously” after Bevill, Bresler’s announcement but that the light trading exaggerated the dollar’s decline.

McGroarty said that, while Bevill, Bresler’s filing “can’t be construed as positive” for the dollar, its full impact on the U.S. currency would not be known until Europe reopens for trading.

“Europe’s perception of the situation will be very important,” McGroarty said.

Looking at the dollar’s fundamentals, another analyst said some of the factors that have underpinned the dollar are beginning to wane.

John D. Connolly, a first vice president at Dean Witter Reynolds, wrote in a recent report that, six months ago, interest rates relative to inflation were substantially higher in the United States than in other nations. That made yields on dollar-denominated investments--and hence the dollar--clearly more attractive to traders.

Differentials Narrowed

However, the “interest-rate differentials between the dollar and many other currencies have narrowed, making the argument for the dollar less compelling,” Connolly said, noting recent increases in short-term British rates as an example.

In addition, the U.S. economy has decelerated over the past two quarters just as economies in many other countries are picking up steam, he said.

For these reasons and others, “we believe that the dollar has seen its high,” Connolly said.

The dollar began its trading day in Tokyo by climbing to 255.95 Japanese yen from 254.70 yen late Friday.

Later, in the United States, the British pound climbed to $1.21425 from $1.1990 late Friday.

Other dollar rates in U.S. trading as of 4 p.m. EST, compared to late Friday were: 2.6425 Swiss francs, down from 2.6725; 9.5750 French francs, down from 9.67875; 254.60 Japanese yen, down from 254.85, and 1.3702 Canadian dollars, down from 1.3740.

Gold, meanwhile, climbed $4.90 to $325 an ounce in contracts for April delivery on the Commodity Exchange in New York.