DOLLAR TRADES MIXED AHEAD OF EXPECTED GERMAN MOVE

DOLLAR TRADES MIXED AHEAD OF EXPECTED GERMAN MOVE

The U.S. dollar was narrowly mixed in quiet trading Tuesday, as the market

went through the motions of trading while awaiting today's Bundesbank decision on a possible easing in its variable rate repurchase rate, now 6.70 percent.

Many analysts said they believed the Bundesbank would shave the repurchase rate, a key money market rate, by only a few hundredths of a percentage point (basis point). That would not be enough to signal a policy shift, but would suggest that the German central bank can be accommodative when circumstances permit.The general scenario held that the Bundesbank, assuming it acts today, will continue lowering its repurchase rate a few basis points a week until late November, when it will make a 50 basis point reduction in the 6.25 percent discount rate and perhaps its 7.25 percent Lombard rate.

The Lombard is another influential money market rate used by the central bank for emergency short-term loans to commercial banks.

After the Bundesbank cuts its discount and Lombard rates, the analysts said, other European nations, possibly Belgium, France and Britain, will lower their rates.

Of course, the Bundesbank may well decide to leave the repurchase rate unchanged today.

But on the assumption it will make the reduction, dealers sold deutsche marks Tuesday morning rather than hold mark positions ahead of a rate cut. Yet, the dollar advance halted at a technical resistance level near DM1.6450, and the dollar fell back.

Some dealers said the speculation of a minor repurchase easing doesn't justify such a large, fast dollar run-up such as they've seen Monday and Tuesday, so they took profits.

Dealer Hugh Walsh of ING Bank said he had seen a lot of dollar profit- taking, "but the dollar's maintaining a bid tone, and we're awaiting the Bundesbank. We can't expect more than a few points off the repo rate."

Tuesday's news of a 2.8 percent gain in U.S. September housing starts to a seasonally adjusted annual rate of 1.351 million units, the highest since a rate of 1.437 million units in February 1990, had almost no market impact, dealers said.

"It was a day of narrow range-trading, going mostly sideways," a chief dealer said.