Speculation About a Hike in Interest Rates Grows : Currency: Clinton aide urges patience, but analysts call for action to support the dollar.

Criticism escalated Sunday over the Clinton Administration’s response to the declining dollar, feeding speculation that the Federal Reserve Board may decide next week to again raise short-term interest rates to bolster the U.S. currency against the Japanese yen and the German mark.

White House officials urged a wait-and-see attitude after Friday’s coordinated $3-billion intervention by the Treasury and 16 other major industrial nations to stop the rapid drop in the dollar’s value.

But today in the Far East the dollar continued to tumble despite heavy dollar purchases by the Bank of Japan. At midday the dollar was trading at 99.50 yen in Tokyo, down from 100.45 at the close in New York on Friday and a new post-World War II low. The dollar also continued to drop against the German mark.

Reflecting currency turmoil and worries about interest rates, Asian stock markets also slumped early today. In Sydney, the All Ordinaries index fell 54.7 points, or 2.7%, to 1,963.2 at midday.

Stocks sank in New Zealand and in Tokyo as well, among other markets.

“We are concerned, we’re serious and we’re focused with respect to the dollar,” said Robert E. Rubin, a top economic adviser to President Clinton.

But he acknowledged that the United States was in a “very difficult situation” as the dollar’s value diminishes.

“The Treasury people did a disciplined and very thoughtful job,” Rubin said on NBC-TV’s “Meet the Press.” “You have to sit and wait and watch what happens over time and then make your judgments” on the response.

While the dollar’s weakness doesn’t reflect it, Rubin said the outlook for the nation’s economy remains healthy for this year and 1995, partly because of Clinton’s ability to achieve congressional approval of a budget plan that would reduce the federal deficit.

Clinton also may discuss a coordinated policy by the seven major industrial nations when the so-called G-7 economic summit convenes in Naples, Italy, next month.

Some financial analysts, however, said the Administration needed to give more emphatic signals that it will not tolerate speculators’ attacks on the dollar’s value, after what appeared to be Treasury acceptance earlier this year of a gradual weakening of the greenback in currency markets.

“This Administration has been halfhearted and poorly timed,” said Allen Sinai, economist with Lehman Brothers. Henry Kaufman, another well-known Wall Street analyst, said of the falling dollar: “Someone has to speak out now and say we will not tolerate this.”

“I think they desperately want to avoid a situation where the Federal Reserve has to raise rates,” said Robert D. Hormats, vice chairman of Goldman Sachs International. “The problem is that the intervention on Friday was ineffective. If they do it (again today) , it’s going to be harder to make it credible.”

Hormats said he doubted that the Federal Reserve would increase short-term interest rates if the dollar stabilizes around current levels against the yen and the mark during the next few days.

“If it started going down, they (the Administration) would have to intervene with more muscle,” he said.

Other analysts said they believe that the Fed’s policy-making Open Market Committee would have little choice but to increase rates for the fifth time this year at its scheduled July 5-6 meeting. Higher interest rates tend to bolster a nation’s currency by attracting investors to its fixed-income securities, such as bonds.

But one economist, Paul Krugman of Stanford University, wrote recently that the Federal Reserve should not risk a significant slowdown in the U.S. economy--which could be a byproduct of higher rates--just to combat the decline in the dollar’s value.

“The dollar’s recent slide is unlikely to trigger serious inflation or provoke a recession,” Krugman wrote in the New York Times.

Rubin declined to discuss Federal Reserve policy or speculation in Wall Street that Clinton will seek to coordinate interest rate policy with other major industrial nations at the Naples summit.

But he did reiterate that the United States was not seeking a cheaper dollar in order to improve the price competitiveness of American goods in trading with Japan or other countries.

“This U.S. government won’t use the dollar as an instrument of trade policy,” he said.

On another trade topic, Rubin said the Adminstration is “very close” to finding the $12 billion needed to cover the effects of the General Agreement on Tariffs and Trade. He said the money will come primarily from budget cuts in domestic programs.

“There will be some revenue (raising) measures, but there’ll be no broad-based general taxes,” he said. The money is needed to offset the $12 billion in reduced tariff receipts expected over the next five years.