FINANCIAL MARKETS : Central Bank Efforts Fail to Stem Dollar’s Advance

The dollar scaled to a 2 1/2-year high against the West German mark and to its best level in nearly two years against the Japanese yen Monday despite central bank efforts to hold it back.

Traders said political turmoil in China and the expectation that U.S. interest rates will remain high continued to attract a steady flow of foreign capital.

The dollar closed at 2.0200 marks, compared to 2.0110 Friday, after touching 2.0315 marks earlier, its highest since November, 1986.

The U.S. currency rose even more sharply against the Japanese yen, closing at 148.60 yen, its highest close since August, 1987, and up from 146.65 Friday. Some traders expect to see 150 yen to the dollar, possibly this week.

“I don’t see what’s going to stop it from going up at the moment,” said Geoffrey Dennis, chief international economist at James Capel Inc.

Foreign investors have been flocking to dollar-denominated securities as a political crackdown in China causes economic uncertainty in Japan, which has problems of its own stemming from transition in Tokyo’s scandal-ridden government. The new prime minister Sosuke Uno has received low marks in early public opinion polls.

With confidence in the West German government likewise shaken by low public-opinion ratings, the United States has become the market of choice for many investors.

Some Expect Fall

Traders said technical factors caused the dollar to fall from highs reached Monday morning, as dealers took profit by selling the currency at predetermined levels.

The Federal Reserve and the Bank of Canada intervened to sell dollars, but traders said the market shrugged off the central banks’ attempts to cool the currency.

“The market is not overbought,” said Martin McNulty, vice president at Lloyds Bank.

Participants continued to buy dollars whenever the currency slipped slightly.

“The buy-on-the-dips mentality is very strong,” one trader said.

Although dealers are expecting further dollar gains this week, some said a fall may occur before it lifts off again.

The British pound has been pressured downward by the expectation that tighter credit cannot hold back inflationary growth. A pound cost $1.5295 at the close of trading Monday, compared to $1.5470 Friday.

The dollar was not quite as strong against other currencies Monday.

It closed in New York at 1.7465 Swiss francs, down from Friday’s 1.7480.

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