LONDON, July 15: Dollar steadied above 1.79 marks on Tuesday, more than recouping losses after a German minister suggested that the US currency's soaring rate was a market over-reaction.

Sterling, too, bounced back from a temporary two-pfennig blip caused by German finance minister theo Waigel's suggestion and his insistence that Bonn wanted a strong mark.

At 10:00 GMT the dollar was quoted at 1.7940 compared with 1.7927 in late trade on Monday, while the pound surged to 3.0255 marks, above its 3.0237 six-year high on Monday.

Waigel said Germany stood by previous agreements on foreign exchange rates within the Group of Seven (G7) industrial nations.

"We are interested in a strong deutschemark," Waigel said, adding "we are in contact with our partners." He was speaking at a news conference in Berlin during a visit to the city of the leadership of his Christian Social Union (CSU) party.

Asked about the strength of the pound and the dollar, Waigel said "I think what's happening at the moment is an overreaction of the markets."

The dollar has lingered near six-year peaks against the mark and the pound hit the highest level since October 1990 against the mark on Monday, raising the spectre of intervention from central banks. "I wouldn't be surprised if the G7 were considering ways and means of stabilising currencies," said Keith Edmonds, Chief analyst at IBJ International in London.

But he said a scattergun approach to intervention at a few targeted currencies would probably be the first sign of protest.

Eisuke Sakakibara, Japan's newly appointed vice finance minister for international affairs, was quoted as saying the forex market has excessive expectations of the yen's appreciation, and Japan's trade surplus will not put upward pressure on the yen. Leading European bourses showed varying gains in morning trade after records were set on Monday in London and Frankfurt. London was up 0.5 percent. Banking stocks accounted from most of the FTSE's early 29-point increase.

However, Waigel's comment that Germany wanted a strong mark, and that the dollar and pound's strength reflected market overreaction, had limited effect on the sidelined mark crosses.

But analysts said the market remained vulnerable to German verbal intervention, and activity could increase later in the day as traders covered their shorts. "Trade will pick up later with more short-covering in the European crosses because we haven't heard the last from Germany about the threat of intervention," said Nick Parsons, Chief currency strategist at Banque Paribas in London.

The mark was quoted at 3.3776/81 French francs at 09:59 GMT compared to 3.3769/72 in late Europe on Monday, and at 971.90/2.20 Italian lire versus 970.55/1.05. "The EMS (European Monetary System) crosses is one area in the currency markets which is pretty dead," said Avinash Persaud, head of currency research at JP Morgan Europe here.

"European currencies have reached their convergence level, the level where they are discounting that they will be in EMU on January 1, 1999, at their DRM central parities."

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.