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The dollar flexes its muscles

Monday was a big day for the dollar.

It rose sharply against all major currencies at the opening of foreign exchange trading in New York Monday, and it climbed to a two-year high against the Japanese yen at the Tokyo Foreign Exchange Market over the weekend.

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In a last-ditch effort to prevent the yen from falling further against the dollar, Japan's central bank was believed to have sold at least $200 million in final hours of trading last week. The bank attributed the yen's weakness to the larger-than-expected rise in the latest US money supply figures and concern over events in the Mideast.

The dollar got more muscular in Europe, too. The European Monetary System (EMS), which sets limits on the fluctuations in exchange rates of eight European currencies, was realigned over the weekend.

The mark and guilder were revalued upward by 4.25 percent, while the French franc was devalued by 5.75 percent and the Italian lira by 2.75 percent.

Dealers in New York noted that interest rates on dollars on deposit outside the United States rose by about a quarter of a percentage point Monday from Friday's closing rates.

Meanwhile on Monday, Citibank announced it was raising its prime rate on business loans to 161/2 from 16 percent, reversing a cut made May 25. Citibank had been the only leading bank to make the reduction to 16 percent.

Dealers said the higher rates, and the prospect of firmer rates in the near future, bolstered the dollar. Demand for dollars !s a currency of refuge in times of uncertainty was also strengthened by concern over the Middle East conflict, dealers said. These factors outweighed the EMS realignment, which was about in line with expectations, they said.

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