10/16 11:41 Euro Drops Toward Record After Comments By ECB's Duisenberg By Mark Tannenbaum

New York, Oct. 16 (Bloomberg) -- The euro approached its record lows after European Central Bank President Wim Duisenberg indicated major central banks may not buy the currency in coming days, as they did three weeks ago to prop it up.

Duisenberg said it would be inappropriate for the ECB and its counterparts to purchase euros when events such as violence in the Middle East cause the single currency to weaken, the Times of London reported. An ECB spokesman confirmed the comments.

The remarks ``decrease (the threat of intervention) substantially in the market's mind,'' said Richard Davies, head of foreign exchange sales at Dresdner Kleinwort Benson. ``The guy is giving you less and less reason to like the euro.''

Europe's common currency fell to a three-week low of 84.82 U.S. cents, from 85.60 cents Friday. It sank as low as 84.63, the lowest since Sept. 21, the day before the ECB and the central banks of the U.S., Japan, the U.K. and Canada bought euros, starting at about the 87-cent level. Against the yen, the euro fell a fifth straight day, to 91.83 yen per euro from 92.335.

At the end of last week, some traders and analysts had pointed to a level below 85 cents per euro as a danger zone that might provoke action by the ECB. The ECB head's remarks ``essentially paved the way'' for a break below 85 cents, said Alex Beuzelin, a currency analyst at Ruesch International.

`No Catastrophe'

The euro is less than a half-cent above its record low of 84.43 cents, reached Sept. 20, and has fallen 27 percent since it began trading at the start of 1999. It sank to an all-time low of 90.065 yen on Sept. 20 as well.

ECB council member Ernst Welteke, in remarks to members of the Christian Social Union in Munich, today said the euro's rate against the dollar is ``no catastrophe,'' though he called the currency ``fundamentally undervalued.''

The aim of the Sept. 22 euro purchases, according to Duisenberg, was to stabilize the euro, rather than return it to a specific level, the Times reported.

Asked whether it would make sense for central banks to buy euros if fighting in the Middle East led to a renewed decline in the currency, Duisenberg said, ``I wouldn't think so.''

Some analysts also said it might not be so easy for the ECB to rally other central banks to its cause next time around, especially given that the U.S. presidential election is less than a month away.

Dollar Safety

``Intervention on the part of the ECB is unlikely to be in coordination'' with the Federal Reserve next time, said Paul Lambert, director of currency strategy at Deutsche Asset Management in London, which oversees $477 billion globally.

``The threat of intervention is less powerful,'' he said. ``The fall in the euro has taken place amid rising Middle East tension and rising oil prices -- traditionally dollar-positive.''

Middle East strife has also driven investors in search of safe alternatives, such as the U.S. dollar, the world's most actively traded currency.

If tensions persist in coming days, those investment flows could make bolstering the euro more difficult, analysts said. The Middle East tension has hurt the euro by driving oil prices higher, a problem for the euro zone as oil is priced in dollar terms.

The dollar rose to 108.35 yen, from 107.83 Friday.

The U.S. currency, when measured against a basket of currencies of some of its major trading partners, also reached the 14-year high that it climbed to in September.

U.S. Stocks

Davies at Dresdner said U.S. stocks will likely be the main catalyst for the currency market this week.

U.S. stocks started the week on a mixed note, with two of three major indexes declining. While further gains may point to continued losses for the euro, a return to the spiraling losses in stocks seen last week would likely help stabilize the currency, Davies said.

On Friday, U.S. stocks surged, and the government reported bigger-than-expected gains in U.S. producer prices and retail sales for September, underscoring the continued strength of the U.S. economy.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOeshphTSRXVybyBE

-- Carl Jenkins (Somewherepress@aol.com), October 16, 2000