Treasury Under Secretary Lawrence Summers denied the United States had shifted its dollar policy and said Washington was prepared to intervene when appropriate.
But his comments failed to wipe out the damage Treasury Secretary Lloyd Bentsen had done to the dollar late Thursday when he said the U.S. had no plans to intervene.
Short-covering of earlier positions and widespread rumors of central bank intervention helped pull the dollar off its lows late in the European session.
It was at 1.4980 Deutsche marks and 97.30 yen late Friday compared with 1.5015 and 97.30 late Thursday in Europe. It earlier fell to a post-World War II low of around 96.55 in the Far East and touched a new two-year trough of 1.4883 marks.
"Everyone wants to test lower but no one wants to take the initiative and hopes someone else will go first," said Jiro Nagato, a senior dealer at Sumitomo Bank in London.
A large option-related order to sell dollars near 96.40 yen could trigger another round of sales when the market has thinned to leave only New York operators in play, dealers said.
"We recognize that in general the dollar represents market fundamentals," Summers told CNN's Business Day television program. "But there are times when intervention is appropriate. ... We would be prepared ... to intervene."
Summers said the United States would prefer to see a stronger dollar, in part because it helps hold down inflation.
"If we start gapping (sharp falls) and volumes pick up, we could see intervention," said Paul Lambert, currency economist at UBS in London.
He added that market activity had not been disorderly this week as trading has been thin, and so far the Bank of Japan has been the lone central bank trying to save the dollar.
"It makes it very difficult to figure out where they really want the dollar," said Standard Chartered Bank's J--rgen Lindemann, head of foreign exchange at the British bank in London.
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