U.S. CREDIT MARKET OUTLOOK - PRIME RATE
The prospect that other banks will
follow industry leaders Citibank and Chase Manhattan in raising
their prime rate is likely to cast a pall over the credit
markets today, economists said.
    Bond prices had been making a smart recovery from two days
of heavy selling when Citibank surprised the market by
announcing a quarter-point increase in its prime rate to 7-3/4
pct. Chase Manhattan quickly followed.
    Prices quickly fell by a full point, even though the dollar
- the market's overriding concern of late - rose sharply on the
news.
    Citibank cited the higher cost of money, especially in the
Euromarket, as the reason for raising its prime rate.
    Part of this rise in market rates has been caused by fears
of a tighter Federal Reserve policy to defend the dollar, but
economists said it is too early to tell whether the Fed, whose
policy-making federal open market committee, FOMC, meets this
week, is already tightening its grip on credit.
    "The Fed seems to have been a bit slow in meeting the
banking system's reserve needs this statement period, but I
wouldn't conclude anything until I've seen the Fed data," said
Jeffrey Leeds of Chemical Bank.
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