Dollar Soars in Europe, Japan in ‘Panic Buying’

LONDON — The dollar started at its highest level for 2 1/2 years in Europe today on speculation that there will be no further easing of U.S. interest rates for the time being.

A strong 0.9% rise in U.S. May producer prices, reported Friday, convinced investors that American inflation remains a problem, dealers said.

The dollar opened at 2.0344 West German marks in London, compared to Friday’s close of 2.0055, a level not seen since November, 1986.

“It was panic buying,” one Frankfurt dealer said.

The dollar started at 149.30 Japanese yen, compared to 146.30 at the finish Friday. The Bank of Japan intervened to sell dollars in Asia as it traded at 147.60 yen. But the sales failed to halt the U.S. currency’s rise.

Strong trading continued in New York, where the dollar opened at 2.0285 marks, compared with Friday’s close at 2.0110, and to 148.95 yen from 146.65.

Dealers said institutional demand for the dollar probably will continue to support it. “The market’s appetite for dollars is still strong,” one dealer at a Japanese bank said.

“The dollar is headed toward 2.05 marks. But it broke through resistance so quickly that I am unsure where the next upward resistance point is,” the Frankfurt dealer said.

Gold bullion traded at 33-month lows in early London business at around $357 an ounce, down more than $11 from Friday’s close. Business was steady, with the fall based mainly on the strength of the dollar, traders said.

Japanese stocks closed lower in reaction to the stronger dollar. The key 225-share Nikkei index fell 241.97 points or 0.72% to close at 33,398.01, after slipping 78.31 points Friday.

Turnover was an extremely light 350 million shares, the 1989 record low. The previous low turnover for the year was 422 million on May 15.

“Volume will stay down as long as the yen is so weak,” said a broker at a major Japanese securities house. “We’re in the era again where only speculator stocks get attention.”