The U.S. dollar rallied sharply Tuesday in a burst of safe-haven buying on signs of political turmoil in Russia.

Dealers said the dollar soared after Russian President Boris Yeltsin disbanded Parliament without warning and announced new elections in December. It was an attempt to resolve his longstanding dispute with hard-liners over the future of post-Soviet Russia.Mr. Yeltsin suspended all powers of the Parliament immediately. He announced that early legislative elections would be held Dec 11-12. The current Parliament's term was scheduled to continue until 1995.

Mr. Yeltsin has been at loggerheads with parliamentary leaders for more than a year and a half over the pace of free-market reforms and adoption of a new constitution.

Vice President Alexander Rutskoi told reporters Tuesday he was taking over as president of Russia.

"This could mean the end of political stability in Russia - to the extent it has achieved any at all, since the breakup of the Soviet Union," said a foreign exchange analyst. "Of course, it's too soon to get a hard fix on what's ahead in the CIS (Commonwealth of Independent States), but right now it's crystal clear that Yeltsin and the Parliament have had it."

The dollar extended an earlier advance, on a rumor that the United States and Japan have worked out a "deal" on economic teamwork.

The rumor widely heard in the markets was that the Washington-based consulting firm Johnson Smick reported that Washington and Tokyo have agreed that the United States will endorse a weaker yen - somewhere near 120 to the

dollar - while Japan would enact broad income tax cuts.

Dealers said when Johnson Smick was queried, it denied having issued such a report.

The dollar rose early Tuesday, amid hopes that an unexpected 7.8 percent rise in August housing starts may be a bullish omen for the U.S. economy.

The Bank of Japan's larger-than-expected cut in its official discount rate to 1.75 percent also helped the dollar. But the rate cut had less impact in

weakening the yen than a Japanese newspaper report that claimed the United States would cooperate with Japan in curbing any yen rise. There was no U.S. corroboration of that report.

The rise in U.S. housing starts was far above the 3.1 percent increase expected by economists. It was the largest gain since August of last year and brought starts to their highest level since February 1990.