CURRENCY : Dollar Off as Plan to Unify Marks Creates Confusion

The dollar finished slightly lower in moderate trading Tuesday amid confusion about a plan for German monetary unification, reversing earlier gains in overseas markets, traders said.

In Japan, the dollar eased slightly in early trading today against the yen. The dollar opened this morning at 151.90 yen, down from Tuesday’s close of 152.67 yen, which was the Japanese currency’s lowest level against the dollar in three years.

Traders said the dollar opened higher in New York, boosted by its rise overseas. It advanced to its high for the day against the West German mark on a midday report that West German Chancellor Helmut Kohl said East Germans would be able to convert their savings to the West German currency at a rate of one East German mark for one West German mark, traders said.

Economists say converting the currency at that rate could cause inflation in West Germany, which would devalue the West German mark. However, the market later learned that the one-for-one currency swap under consideration would apply only to small savings accounts, traders said. The news sparked a sharp selloff of the dollar.

“I’ve never seen anything like it and I’ve been in the market 11 years,” said Abigail Cook, a dealer with Hong Kong and Shanghai Banking Corp.

She said the dollar drop lasted a few minutes before the currency stabilized at a lower level.

The dollar closed in New York at 1.7120 marks, down from its high of the day of 1.7218 and from Monday’s late figure of 1.7135 marks. Earlier, in Europe, the dollar closed at 1.7165 marks, up from 1.7110 Monday.

The market had little reaction to government reports showing that the deficit in the broadest measure of U.S. trade sank to a five-year low last year, and that retail sales in February took their steepest fall in four months.

The figures were about what the market had expected, said Robert Hatcher, a dealer with Barclays Bank PLC.

In London, the dollar rose against the British pound. It cost $1.6005 to buy one pound, cheaper than $1.6100 late Monday. Later, in New York, it closed at $1.6097, down from $1.6115 late Monday.