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Bonds News

UPDATE 1-Paulson backs strong U.S. dollar, confident on economy

(Adds quotes, details, background)

CAPE TOWN, South Africa, Nov 15 (Reuters) - U.S. Treasury Secretary Henry Paulson repeated on Thursday that a strong dollar was “very much” in America’s interest and said the U.S. economy’s underlying vigor will eventually show up in the currency’s value.

“A strong dollar is very much in our nation’s interest,” Paulson told a small group of reporters traveling with him as he flew from Tanzania to South Africa, where he will attend a weekend meeting of Group of 20 finance chiefs -- some of whom have expressed anxiety at the impact of the dollar’s slumping value.

“Our economy, like any other, goes through ups and downs but I believe the U.S. economy is going to continue to grow and its fundamental long-term strength is going to be reflected in currency markets,” Paulson said.

Paulson arrived in Tanzania on Wednesday night and will fly to Ghana on Sunday after attending the G20 meeting of rich and emerging-market countries in Kleinmond, outside the port city of Cape Town. He returns to Washington on Tuesday.

Paulson’s comment to reporters echoed comments he made last Friday, before leaving Washington, when he said the U.S. economy’s strength will eventually “shine through” current market turmoil and help the greenback remain the premier reserve currency.

Paulson has hewed closely to a mantra that a strong dollar is in the U.S. interest and that its value should be set in open markets. President George W. Bush earlier this week said that if more people realized the U.S. economy’s durability, the dollar would strengthen.

“We have a strong-dollar policy and it’s important for the world to know that,” Bush said, speaking on the same day that Paulson left for his five-day tour of Africa.

The G20 takes in not only the Group of Seven rich industrial nations, but also key emerging-market powers like China, India and Brazil. Ahead of the weekend sessions, allies like Canada have suggested the dollar’s decline would be an important topic and Japan has expressed unease as its yen has climbed steeply against the dollar.

Paulson said he fully expected currency to be discussed at the G20 sessions but said he also will try to push for more progress at reaching a successful conclusion to long-running Doha trade liberalization talks.

In response to questions, he said current financial-market turmoil may be prolonged and said it was fueling a sharp rise in investors’ demands that banks and businesses exposed to potential losses from subprime mortgages come clean about them.

“Markets are demanding greater disclosure and the uncertainty in the markets is leading companies to come forward with more disclosures,” Paulson said. But “there’ll continue to be volatility and some bumps in the road.”

On other issues, Paulson said he agreed with Federal Reserve Chairman Ben Bernanke that temporarily lifting current limits of $417,000 on so-called "jumbo" home mortgage loans in which government-sponsored enterprises Fannie Mae FNM.N and Freddie Mac FRE.N can invest might ease strains in the mortgage market.

But he said it should be done as part of a broader overhaul of the rules governing the operations of Freddie and Fannie and said he was “frustrated” that the Senate Banking Committee was not moving ore quickly on reform proposals.

He said lawmakers in the U.S. House of Representatives were “ready to go” on GSE reform, but action was stalled by the Senate.

Paulson’s African tour is aimed at spotlighting countries in the region that the Bush administration feels are following market-based principles and that have track records of growth.

“I don’t want this trip to be about aid to Africa,” Paulson said. “I want to focus on economic performance and macroeconomic development, deregulation and fundamental reform.”

That is more likely to bring lasting wealth to the region, he said, adding: “No one’s going to be able to get what they want just through aid.” (Editing by Dan Grebler)

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