FINANCIAL MARKETS : Dollar Suffers Steepest One-Day Fall in Years

The dollar plummeted Thursday in what analysts called the steepest one-day decline in years, as traders who had been powering the currency’s long rally suffered a sudden crisis of confidence.

Market watchers said there was no apparent news to account for the dollar’s drop, which amounted to 2.5% or more against the British pound, West German mark and Japanese yen.

Instead, traders said the dollar appeared to have risen too far, too fast in recent weeks and may have been ripe for a sell-off on the part of speculators anxious to cash in their gains.

“It was just inevitable we would reach some level where there were just no more buyers and the sellers would gain the advantage,” said Bob Giordano, chief dealer at Bank Leumi Trust Co. in New York.

Analysts say a market rally often breaks just when market sentiment that the advance is unstoppable is strongest, because there is no one left to persuade and therefore no more fresh cash available.

Japanese Report Cited

The dollar sank 4 yen to about 145 Japanese yen and 5 pfennigs to about 1.98 West German marks. The value of a British pound rose 4 cents to $1.55.

Andy Robertson, a vice president at Chase Manhattan Bank, said the dollar’s single-day fall was one of the biggest he has seen since he began trading currencies in 1980. Dealers said they could not recall the date of the last big drop.

Grasping for explanations, some traders cited a Japanese news report that quoted unidentified sources as saying the Bank of Japan would continue to sell more than $1 billion a day in the open market, if necessary, to restrain the dollar’s recent rally.

Weakness in the U.S. bond market also hurt the dollar, traders said. Bonds fell after the government issued a report on May industrial production that showed more economic strength than expected, raising concerns about inflation.

There were rumors that the Federal Reserve and other central banks were helping to knock the dollar down.

The Commerce Department’s report that the merchandise trade deficit fell to $8.26 billion in April initially drove the dollar higher. Shortly after the trade figures were announced the dollar touched 2.0475 West German marks and 151.85 yen. The British pound fell to $1.4940 before the reversal began.

In Tokyo, where trading ends before the business day begins in Europe, the dollar rose 3.25 yen to 151.30 yen, its highest level since August, 1987. Later in London, the dollar fell to 149.60 yen. In New York, the dollar fell to 145.40 yen from 149.45 late Wednesday.

Precious Metals Higher

In London, the British pound rose to $1.5195 from $1.5143 late Wednesday. In New York, sterling rose to $1.5510 from $1.5120 on Wednesday.

Other late dollar rates in New York, compared to late Wednesday’s rates: 1.9845 West German marks, down from 2.0374; 1.7095 Swiss francs, down from 1.7555; 1.1966 Canadian dollars, down from 1.2001; 6.7390 French francs, down from 6.8945, and 1,443 Italian lire, down from 1,470.

Other late dollar rates in Europe, compared to late Wednesday’s rates: 2.0235 West German marks, down from 2.0290; 1.7490 Swiss francs, down from 1.7525; 6.8680 French francs, down from 6.8690; 2.2915 Dutch guilders, up from 2.2805; 1,472.00 Italian lire, up from 1,464.50, and 1.1993 Canadian dollars, unchanged.

Silver Rises to $5.30

Gold and silver prices were mostly higher.

On the Commodity Exchange in New York, gold bullion for current delivery rose to $367 an ounce from $363.80 on Wednesday. Republic National Bank of New York said gold was bid at $366.80 an ounce as of 4 p.m., up from $361.70 on Wednesday.

Gold rose in London to a late bid of $362.50 an ounce from $361.75 late Wednesday. In Zurich, gold closed at a bid of $361.75, compared to $360.25 late Wednesday.

Silver bullion prices rose in London to a late bid of $5.29 an ounce, from Wednesday’s $5.23. On New York’s Comex, silver bullion for current delivery rose to $5.309 an ounce from $5.255 on Wednesday.

Tables, Page 6