Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, May 5, 1994                   TAG: 9405050154
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: 
DATELINE: WASHINGTON                                LENGTH: Medium

U.S., 15 OTHER NATIONS INTERVENE TO PROP UP DOLLAR/

The Federal Reserve and central banks in Japan and Europe joined to buy greenbacks and sell other currencies in what was the biggest coordinated effort of its type since August 1992.

The operation met with initial success as the dollar, which had been approaching a historic low against the Japanese yen and a six-month low against the German mark, was driven higher in value.

However, analysts said the positive effects were likely to be short-lived without other policy changes. They suggested the Fed would be forced within the next two weeks to increase interest rates for a fourth time this year. Raising interest rates is another way a country can defend its currency.

The coordinated effort Wednesday, which included the central banks of the world's seven largest industrial countries, followed an initial foray by the Federal Reserve acting alone on Friday.

In both cases, Treasury Secretary Lloyd Bentsen took the unusual step of announcing the action with a written statement.

``These operations reflect our view that recent movements in exchange markets have gone beyond what is justified by economic fundamentals,'' Bentsen said Wednesday.

``This administration sees no advantage to an undervalued currency,'' he said.

The last remark was aimed at a widely held belief among currency traders that the administration has been tacitly allowing the dollar to weaken against the yen in an effort to narrow a huge trade gap with Japan.

By making Japanese goods more expensive for Americans and U.S. products cheaper in Japan, a weaker dollar and a stronger yen should over time narrow the record trade imbalance between the two nations..

Currency instability and rising long-term interest rates around the world were primary topics of discussion when finance ministers and central bank presidents of the seven richest industrial countries - the United States, Japan, Germany, France, Britain, Canada and Italy - met in Washington 10 days ago.

All seven, joined by the central banks of Switzerland, Belgium, Spain, Portugal, the Netherlands, Austria, Finland, Norway and Sweden, intervened Wednesday in currency markets by buying dollars.

It was the largest such dollar rescue effort since Aug. 24, 1992, when the United States and 14 other countries joined to keep the dollar from breaking through what at that time was its postwar record low of 1.4355 German marks. That effort eventually failed, however, as the dollar slid lower the following week.

This latest effort showed results, at least for Wednesday. The dollar finished in New York at 1.6535 German marks, up from a six-month low of 1.6370 on Tuesday. It was changing hands at 101.85 yen, up from 101.00 on Tuesday.