08/17/1998 08:47:45 Mark slides and dlr sparkles as Russia dominates

LONDON, Aug 17 (Reuters) - The mark was battered and the dollar shot higher against other major currencies as fears about further financial turmoil in Russia were fuelled by Moscow's changes in its monetary policy. The clear gainer was the U.S. currency, with dollar/mark rising to a five-week high after the Russian government and central bank said it was impractical to keep its daily rouble corridor and also declared a 90-day moratorium on repaying foreign credits. The dollar had eased back to 1.8067/77 marks by 0735 GMT from the peak of 1.8121 reached earlier in the day. The mark has dropped about 0.7 percent against the dollar from levels seen late on Friday. Its moves against other major currencies were milder -- a 0.3 percent drop against the safe-haven Swiss franc and a 0.4 percent fall against the British pound. "The mark's under pressure, we're seeing a reflection of the concern about German banks' exposure to Russia which is a key linkage which is always used as a rationale to sell marks on Russian fears," said Jeremy Stretch, currency strategist at NatWest Global Financial Markets. Analysts said the Russian situation would dominate markets for now as they awaited further developments. Russian authorities said the rouble rate would be set according to the market's trading rather than predetermined by the central bank, but Prime Minister Kiriyenko denied that this was a devaluation. Analysts also warned against currencies over-reacting to the Russian news. "One shouldn't overplay the issue of Russia's trade links to Europe, though there is the perception that Germany has a large exposure," said Stretch at NatWest. Others said the Russian government's action had been well anticipated by the markets and this was why moves in major currencies were relatively small. "To be honest, the currency market had largely priced in a Russian devaluation. I think dollar/mark has the scope to test the high (of 1.8325) we saw in July, but I'm not anticipating it going much beyond that," said Stephen Hannah, director of research at IBJ International. While the Russian issue was dampening the mark, it was winning some support from the flight out of other emerging markets into U.S. and German assets, Hannah said. Amid the changes in Russia, U.S. President Clinton's testimony to the grand jury later today on the Monica Lewinsky case was seen as less of an immediate factor. "There may be a knee-jerk reaction to it, but it's a story that has been going on for seven months or so," Jane Foley, currency strategist at Barclays Capital, told Reuters Television, adding the U.S. economic situation did not depend on the outcome of the Lewinsky case. Meanwhile, the yen was out of the spotlight for now but analysts said the respite for the ailing Japanese currency would be brief. While dollar/yen had eased back from the eight-year high of 147.63 seen last week on Japan's depressed economic situation, it was still fairly firm at 146.14/24 yen against 145.69/79 seen late on Friday. The most recent negative factor for the yen was the 2.18 percent drop in the Nikkei stock average on Monday that took it below the key 15,000 level. "The underlying position (for the yen) is still fundamentally negative, there's strong suspicion there will be foot-dragging in banking reforms," said IBJ's Hannah. "At the moment the market's holding back a bit because of the threat of intervention." ((Chizu Nomiyama, London newsroom 44 171 542 6721, uk.forex.news@reuters.com))