Dollar Rises to 20-Month High Against Mark : Markets: Traders act on speculation that Germany will lower its interest rates, attracting investment in U.S. currency.

Talk of lower interest rates in Europe and a big purchase of the U.S. currency sparked the dollar to a 20-month high against the German mark on Friday, while reduced inflation fears fueled another record low yield in long-term Treasury bonds.

Meanwhile, Wall Street capped off a strong week with a small advance as investors braced for next week’s flood of earnings reports. The Dow Jones industrial average rose 6.64 points to end at 3,521.06, up 37.09 points for the week. The Dow had rallied more than 60 points Wednesday and Thursday.

The dollar surged against the mark after a large purchase in Europe set off what traders said was a chain reaction of buying in a thin market. Dealers said the identity of the buyer was unknown.

Demand for dollars was also fueled by talk of further German interest rate cuts, dealers said. The talk was rekindled by a statement from the Group of Seven industrial nations meeting in Tokyo. It called for lower European interest rates as part of a three-pronged approach to stimulating the world economy.

The dollar benefits from lower German interest rates, which make the mark less attractive to investors.

Jitters about the viability of Europe’s Exchange Rate Mechanism, which links the currencies of eight European Community nations, also helped the dollar.

The fears stemmed from continued weakness of the French franc, which came under attack Thursday following a weak economic report. Because France is a key member of the ERM, its withdrawal, even temporarily, would shake the foundations of the currency agreement.

“The dollar is clearly drawing support from renewed tension in the ERM and from all this talk about German interest rates being cut again this month,” said David Cocker, currency analyst at Chemical Bank in London.

In New York, the dollar was trading late at 109.96 yen, up from 108.54 on Thursday.

Also in New York, the dollar traded at 1.7220 German marks, up from 1.7023.

Credit

Optimism ahead of next week’s inflation figures continued to give a lift to long-term Treasury bonds, pushing the yield on the benchmark 30-year bond to a record low for the second straight session.

The yield on the Treasury’s main 30-year bond fell to a new low of 6.64%, from 6.65% on Thursday. Its price, which rises when yield falls, rose 0.25 point, or $2.50 per $1,000 in face value.

Amid a lack of fresh developments, trading was thin as participants eagerly awaited next week’s two June inflation reports: the producer price index, scheduled for release Tuesday, and the consumer price index, to be released Wednesday.

Most economists expect the figures to show a continued low annual rate of inflation, which would bode favorably for bonds. Higher inflation would tend to diminish the value of Treasury securities, particularly bonds that don’t mature for many years.

Many economists believe that overall producer prices will be unchanged to down 0.3% in June. Consumer prices, meanwhile, are expected to increase by between 0.1% and 0.2%.

With their attention on inflation concerns, participants continued to react positively to a decline in daily commodity prices. On Friday, the Commodities Research Bureau index fell 0.7 to 216.05 due to declines in prices of grains and precious metals.

Stocks

Auto and technology shares attracted buyers, but traders were hard-pressed to find many themes in the languid day.

“It’s a typical summer Friday session,” said Robert Walberg, an analyst at MMS International.

In the broad market, advancing issues led declines 1,067 to 829 on the New York Stock Exchange, where volume exceeded 233 million shares.

However, transports remained weak, with the Dow Jones transportation average losing 10.09 points to 1,509.16.

Traders were awaiting the start next week of earnings reports for the second quarter.

Among the market highlights:

* Rallying technology stocks included Adobe Systems, up 2 5/8 to 59 3/8 after its board approved a 2-for-1 stock split. Digital Equipment rose 1 3/4 to 40 1/4 and Compaq Computer added 1 1/8 to 45 3/4. S.G. Warburg upgraded its Compaq rating to buy from hold.

Intel Corp. added 1 1/4 to 56 on anticipation of better than expected second-quarter earnings.

* Auto stocks continued their recent rally. General Motors added 5/8 to 47 1/2, Ford rose 7/8 to 52 1/8 and Chrysler gained 3/8 to 47 1/2.

* Baxter International slipped 1 5/8 to 26 7/8. It said its second-quarter income will be lower than a year ago.

* Aluminum Co. of America added 1 1/4 to 71 1/2 after it reported second-quarter earnings that exceeded analysts’ expectations.

Overseas, London’s Financial Times 100-share index closed 2.7 points down at 2,843.2, a slide of 14.5 points for the week. German stocks continued their rally, with Frankfurt’s DAX 30-share index closed up 13.71 points at 1,797.41. That was up 99.6 from last Friday.

Tokyo’s 225-share Nikkei average was up 188.72 points, or 0.96%, to 19,877.39. It was up 255.93 for the week.

Commodities

Forecasts for crop-damaging hot, dry weather in the Southern United States caused a sharp rise in cotton prices Friday, while wheat prices tumbled ahead of a key U.S. Agriculture Department report Monday.

The December cotton contract rose the daily limit of 2 cents to close at 59.98 cents per pound on the New York Cotton Exchange.

The Chicago Board of Trade’s July soft, red, winter wheat contract fell 6 cents to $2.9625 per bushel, and Kansas City’s July hard, red, winter contract was off 1.5 cents at $3.05.

August crude oil settled 10 cents higher at $17.89 a barrel on the New York Mercantile Exchange. Heating oil ended up 0.66 cent at 50.49 cents a gallon.

Traders said nervousness about the outcome of the Iraq-United Nations talks and technical buying sent oil prices modestly higher.

Gold prices fell $3.30 on New York’s Commodity Exchange, where bullion for the most active September contract settled at $393.30 an ounce.

Market Roundup, D4