NEW YORK -- The Federal Reserve Bank coordinated a dollar-buying spree yesterday with a dozen European central banks to keep the dollar from drifting any closer to its all-time low against the German mark. But the action lifted the dollar only slightly.
The Fed's intervention, its third in three weeks, apparently was aimed at keeping the dollar from going down so far that it bred panic in currency and stock markets. The buying was also intended to prevent the dollar from hitting a record low that could be politically embarrassing to President Bush during an election year, traders said.
The dollar closed at 1.4669 German marks, up from Monday's close at 1.4630 marks, and a cut above the all-time low of 1.4475, set on Feb. 11, 1991. The Fed began buying when the dollar fell to 1.4620, traders said, and waded into the market repeatedly during the day.
The dollar rose to 128.00 Japanese yen in late New York trading from Monday's 127.90. In Tokyo overnight, before trading began in Europe, the dollar closed at 127.91 yen, down 0.01 yen from Monday's close. In afternoon trading in London, the dollar was quoted at 128.05 yen.
Chris Bourdain, manager of foreign exchange sales at Credit Suisse New York, said the Fed and other central banks wanted to assure traders that they would set a floor to the dollar's price and they wanted to demonstrate a coordinated policy.
"But that glosses over the very big differences in interest rate policy," he said. "Europe is anti-inflation, and the U.S. is pro-growth, and that's about as opposite as you can get."
The dollar's sharp drop in recent months has followed a yawning discrepancy between short-term interest rates in the United States and Germany: The former are at their lowest point in 30 years, the latter at their highest in 50 years. A higher payoff in interest rates lures investors from the United States to Germany, and from dollars to marks.
As usual, Fed officials declined to comment.
A spokesman for the Bundesbank, which participated in the buying, said that the action was taken at the initiative of the Fed, Reuters reported.
The Fed and the Bank of Canada bought dollars last Friday, traders said, but yesterday's concert of central bank buying was the first since July 20, when the dollar fell to 1.4473 marks and then lifted to 1.4937 marks.
Despite yesterday's mixed results, foreign-exchange traders said they expected the Fed to re-enter the market as often as necessary to keep the dollar from falling sharply. One trader estimated that the Fed bought $600 million to $800 million in U.S. currency yesterday.
"They are most concerned about confidence in the dollar," said a foreign-exchange manager, citing the economic and political concerns of Treasury Secretary Nicholas F. Brady. "The last thing Brady needs is a record low."
But central-bank intervention is suffering from the law of diminishing returns, as successive bouts of dollar buying do less and less to push the currency higher, traders said.
Buoying the dollar at its current levels will become increasingly more expensive, said traders, some of whom expect the currency to hit its all-time low soon.
"Everyone will now expect the central banks to come in every day, and, as a result, it's going to have less and less effect each time they intervene," said Carl Amendola, assistant vice president at Bayerische Hypotheken und Weschel Bank. The intervention is another sign of the dollar's vulnerability, he said.