The dollar is on the agenda at Naples, but market doesn't expect any action on interest rates.

WASHINGTON -- The economic summit of industrial nations that opens tomorrow in Naples is not going to produce any agreement to support the dollar by lifting U.S. interest rates or easing foreign rates, bond market analysts say.

Lawrence Summers, the Treasury Department's undersecretary for international affairs, confirmed yesterday that the sensitive topic of the dollar will be discussed by President Clinton and other summit leaders during their four-day meeting.

The comments by Summers came as the dollar weakened again in foreign exchange trading, hitting 1.5668 German marks, a 14-year low. The dollar was also quoted at 97.63 yen, near its post-World War II low.

But U.S. and foreign finance officials have played down worries over the dollar's drop in exchange markets, and Clinton has instead outlined a broad economic agenda to promote job creation and expand global trade.

As a result, bond market participants are already yawning that the summit will turn out to be more public relations than substance -- at best a reaffirmation of existing policies and commitments by the G-7 nations. "I suspect very little will come out of it," said Robert Hormats, vice chairman of Goldman Sachs International Corp.

"There was an outside chance that if the markets had been very volatile prior to the summit, something could have happened among the central banks, but I don't think that's likely," Hormats said.

Underscoring the sense of suspended motion in the bond market, members of the Federal Open Market Committee completed their two-day meeting yesterday without announcing any change in short-term rates. Analysts are now focusing on tomorrow's unemployment report for June, which will provide the first government figures on how much momentum the economy had going into the summer.

Clinton and his top economic aides have been stressing the strength of the U.S. economy compared with other Group of Seven nations and arguing that the task of the summit is to create jobs in a reviving global economy that is changing rapidly because of technology and innovation. Instead of focusing on short-term problems such as exchange rates, the emphasis is on setting a long-term agenda for economic growth.

"We have to move from coping with crises to planning for prosperity," Clinton said in a speech Tuesday to business leaders before he left for Andrews Air Force Base to begin his trip to Europe.

At the same time, Clinton boasted that the United States has done more than its part in promoting a stronger global economy. In the last year, the country accounted for 75% of the economic growth among G-7 nations and nearly all of the new jobs generated, he said. White House officials also noted that in the United States, the budget deficit as a share of gross domestic product is shrinking.

Hormats said he doubts that the central banks of Germany and Japan will readily take up Treasury Secretary Lloyd Bentsen's appeal for lower interest rates, which could take some pressure off the dollar. "He can talk to these countries about stimulating their economies and lowering interest rates, but I don't suspect much is going to happen there," he said. "It's an opportunity to deliver a message, but that's about it."

Germany has some room to lower short-term rates, but Bundesbank officials are still focusing on inflation, rapid money supply growth, and hints of an economic recovery, said Hormats. Moreover, he added, German central bankers do not like to adjust rates solely in response to foreign exchange fluctuations and instead prefer to act on domestic economic considerations -- the same as Fed officials.

"I don't think there's going to be any agreement to coordinate interest rates next week after the meeting's over," said Kathleen Camilli, chief economist for Maria Fiorini Ramirez Inc.

But Camilli said she does not rule out another round of intervention in foreign exchange markets by the Fed and other central banks to try to keep the dollar in line, at least temporarily. "There'll be an agreement to intervene to maintain the dollar and prevent any unmanageable decline. It's in no one's best interest to have a chaotic situation." she said.

Elliott Platt, director of bond market research for Donaldson, Lufkin & Jenrette Securities Corp., cautioned that the bond market could be disruputed.

"I think the bond market should be kind of wary," Platt said. "The market is being lulled into this pseudo sense of complacency that nothing is going to happen at the G-7 summit." The dollar "is going to be very, very high" on the agenda, he said, and if it doesn't improve, "you're going to see massive 24-hour intervention that will start in Tokyo and go around the globe as markets open up."

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