LONDON -- A decision by Finland to devalue its currency rippled through the world's financial markets yesterday, setting off yet another surge in the value of the German mark and pushing most European stock prices lower.
The rise in the mark sent the dollar down again in trading in London. The dollar closed here at 1.3915 marks, down from 1.4030 Monday, and in New York trading the dollar closed at 1.3945 marks, down from 1.4015 Friday, the last day of trading before the Labor Day holiday.
Fears that the rise in the mark and the corresponding decline of most other currencies would force Italy, Britain and other nations to raise interest rates rattled equity markets in Europe.
In London, the Financial Times-Stock Exchange index fell 34.5 points, to 2,337.7. Investors in Paris sent the market there down by 15.63 points, to 1,763.67 on the CAC-40 index. Stocks in Frankfurt closed at 1,544.35, up 3.92 on the DAX-30 index.
"The markets are very sensitive to things European, and there are a lot of implications of higher interest rates," said Robert Barrie, a European economist for Barclays de Zoete Wedd Ltd. in London.
The devaluation by Finland -- actually a decision to allow its markka to float in value rather than to keep it pegged to other European currencies -- came as investors already were skeptical of the stability of Europe's other weak currencies, including the British pound and the Italian lira.
Investors also have been nervous for several weeks that voters in France might reject a treaty on the next stage of European unification when it is put to a referendum on Sept. 20. A rejection could push the mark even higher, forcing other nations to choose between raising interest rates to defend their currencies or dropping their commitment to keeping their currency values linked within a specified range.
A poll released yesterday showed the vote in France too close to call.
"What's happened in Scandinavia has increased concerns about possible devaluations elsewhere," said Darren Cullen, an economist with Salomon Brothers in London. "As you've had increased challenges to exchange-rate policy in advance of Sept. 20, the weaker markets have come under growing pressure."
Analysts said Finland's move reinforced the belief among investors that the mark was the only haven, pushing the German currency's value up again. The pound, for example, fell to 2.788 marks, from 2.795.
Finland had decided last year to peg the value of the markka to a basket of European currencies as a way of reducing inflation and getting the nation's economy into shape in preparation for eventual entrance into the European Community.
But Prime Minister Esko Aho, faced with a deep recession caused in part by a decline in trade with the former Soviet Union, chose yesterday to allow the currency's value to float rather than raising interest rates further or intervening heavily in foreign currency markets to protect the markka. In currency trading yesterday, the markka fell about 13 percent. Finland had devalued the currency once before, in November of last year, by a similar amount.
Finland's decision quickly created problems for Sweden and Norway as well, as investors fled their currencies, worried that they, too, might be devalued. Norway, seeking to avoid a sharp decline in its krone, intervened by buying the currency in the markets. Sweden acted quickly to maintain the value of its krona by pushing interest rates up to an all-time high of 24 percent, from 16 percent.