LONDON, July 8: The mark drifted on its European crosses on Tuesday as the market's attention turned to sterling's renewed surge against the mark to its highest level since May 1991.

However, sterling/mark's rise and the strength in dollar/mark, which rose close to 40-month highs this morning, failed to ignite the European crosses."It's all in sterling/mark and dollar/mark this morning, and the core ERM currencies are very quiet since nothing much has changed concerning (the market's perception of) EMU," said one trader at a British bank.

German unemployment data, which had come out softer than expected, were shrugged off. June unemployment numbers were up a seasonally adjusted 11,000 against forecasts of 8,500, although they were better than the 56,000 increase seen in May. The adjusted jobless total was 4.37 million against May's 4.36.

The German Labour Office said it did not see much room for improvement in the numbers in the short term.

Analysts said there was little the mark could do against its counterparts in the European exchange rate mechanism (ERM) at the moment since little had happened to change the market's perception that EMU will go ahead as scheduled in 1999. "We're at the stage where EMU has been discounted as far as most of those (ERM) currencies are concerned," said David Brickman, European economist at Yamaichi International.

"With the exception of the Irish punt, they're all pretty much within two percent of their central parity against the mark. So currency-wise, the markets are unwilling to bet against EMU taking place on time," he said.The lira was at 973.90/00 per mark at 1045 GMT, against its late Monday European level of 974.35/65. Its central parity rate is 990. The French franc, whose central rate is 3.3539 per mark, was at 3.3719/24 against 3.3716/18.

Convergence moves in reaction to swings in EMU sentiment were now more apparent in the European bond markets, especially Italy's.Italian government bond prices are currently in a record-breaking rally, with investors piling into the market on optimism that Italy will make the grade for the single currency in time for its scheduled launch in January 1999.

The yield spread between key 10-year BTPs and bunds shrank to its smallest-ever 98 basis points in this morning's trade.

"A key gauge of EMU sentiment is the BTP/bund (yield) spread, which keeps hitting record lows, suggesting that markets believe EMU will be going ahead," said Mark Geddes, treasury economist at ABN Amro in London.

But as far as European currencies are concerned, even if France and Germany admit their budget deficit-to-GDP ratio will overshoot the three-percent target by more than a tiny margin, this is unlikely to shake the market substantially, analysts said. If anything, the market was now keeping closer watch on the political facet of EMU, particularly the situation in Germany, they said.

Edmund Stoiber, premier of the German state of Bavaria, caused a stir on Monday when he said a "controlled delay" of EMU would be better than pushing EMU through with a weak currency. He had made similar comments a week ago.Stoiber's comment on Monday met with severe criticism from the general secretary of chancellor Helmut Kohl's CDU party.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.