CURRENCY : West German Rate Hike Bolsters Dollar

The dollar strengthened Thursday after a West German interest rate hike failed to hurt the U.S. currency and led money dealers to assume that the U.S. Federal Reserve would tighten credit in this country.

Gold prices dropped as much as $8.60 an ounce in New York in reaction to tumbling platinum prices, a result of fears that the world automobile industry demand for platinum could dwindle. Precious metals historically move in the same direction.

Currency strategists said the West German Bundesbank’s hike in a key lending rate to 5.5% from 5% raised speculation that the U.S. central bank would raise its discount rate, the loan fee to financial institutions, which as of Thursday stood at 6.5%. A higher U.S. rate would tend to make dollar-denominated holdings worth more.

Currency dealers also said the West German bank’s move had generated optimism that the West German mark would rise as well. But when the mark did not rise as expected, speculators sold it and bought dollars instead.

In Tokyo, the dollar fell 0.38 Japanese yen to 122.97 yen. Later in London, the dollar was quoted at 123.35 yen. By the time trading ended in New York, the dollar fetched 123.86 yen, up from 122.77 yen late Wednesday.

Platinum Panic

In London, the British pound dipped to $1.8280 from $1.8335 on Wednesday. In New York, the pound fetched $1.8192, down from $1.8295 Wednesday.

Other late dollar rates in New York, compared to rates late Wednesday: 1.7557 West German marks, up from 1.7374; 1.4783 Swiss francs, up from 1.4655; 1.2054 Canadian dollars, up from 1.2020; 6.0075 French francs, up from 5.9390, and 1,296.50 Italian lire, up from 1,285.25.

Other late dollar rates in Europe, compared to late rates Wednesday: 1.7485 marks, up from 1.7365; 1.4725 Swiss francs, up from 1.4630; 5.9745 French francs, up from 5.9350; 1.9665 Dutch guilders, up from 1.9590; 1,288.00 Italian lire, up from 1,279.50, and 1.2054 Canadian dollars, up from 1.1986.

In the precious metals market, a barrage of platinum selling was incited by reports that Ford Motor Co. had devised a substitute material for platinum, which is heavily used by the automobile industry for emission-control devices. The platinum panic spilled into the gold market.

“With platinum moving down so sharply, the psychology tarnished the other precious metals and resulted in a wave of selling,” said Jeffrey Nichols, a strategist at American Precious Metal Advisers in New York.

At Republic National Bank in New York, gold was quoted at $413 an ounce as of 4 p.m. EST, down from $421 late Wednesday. At the New York Commodity Exchange, gold for current delivery dropped $8.60 to $412.90.

Earlier in London, gold fell $4.30 an ounce to $416.45; in Zurich, Switzerland, it fell $4 to $416 and in Hong Kong it rose $1.67 to $423.05.

Silver bullion for current delivery dropped 11.6 cents an ounce on the New York Comex to $6.061. Silver in London fell 5 cents to $6.11.

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