Dollar Hits New Lows Before Staging Rally : Money market: It falls against the German mark but recovers on Mideast and oil price developments.

The dollar touched an all-time low today against the German mark but then recovered to stand little changed, propped up by a continuation of Mideast tensions and a rebound in oil prices.

An apparent failure by Saudi Arabia to garner a majority for an emergency meeting of OPEC led to a recovery in oil prices, which had tumbled earlier.

That, in turn, led to a rise in credit market interest rates by fanning inflation worries. Higher interest rates would favor a rebound in the U.S. currency.

The dollar initially fell to the all-time low of 1.5533 marks compared to 1.5640 marks at Tuesday’s close. But it recovered to stand at 1.5620.

Earlier, a slight easing of worries over the gulf situation had led to a steep drop in oil prices on the New York Mercantile Exchange.

The decline in oil, coupled with continued worries over the U.S. economy, led to an early drop in the dollar, which remained lower against most currencies. The market remains convinced that the currency will weaken even further.

“The dollar has in fact taken it on the chin” because of the sluggish U.S. economy, said Mark Cohen of Fuji Bank in New York. Cohen said the dollar could drop another 1% or 2%, although not much farther.

The U.S. currency dropped to 147.15 Japanese yen from 148.80. The yen was supported by a continued rebound in the Japanese stock market, where prices rose sharply for a second consecutive session.

John McCarthy of Amsterdam Rotterdam Bank said the dollar is suffering from the “short-term perception that the U.S. economy is weak in its own right and relative to European economies.”

He said interest rate differentials favor foreign currencies, especially against the belief that U.S. rates will fall farther at some point.

He predicted the dollar could fall another 3% to 5%, which would take it to about 1.4775 marks.

The dollar was at 1.3030 Swiss francs, down from 1.3035. The British pound climbed to $1.9022 from $1.8970. Against Canada’s currency, the dollar eased to $1.1430 (Canadian) from $1.1440.

McCarthy said investors, particularly those with a long-term view, would find it difficult to justify buying currency such as the British pound at current lofty levels.

He said given depressed real estate prices in much of the United States, “there has to be some long-term money coming out of Europe willing to buy assets here.”

In addition, he said, given the need for capital in the United States, including such problems as the savings and loan bailout and budget deficits at the state level, U.S. interest rates may not fall as much as some people apparently think.