The US$ fell yesterday after the Group of Seven leading industrial nations declared victory in a two-year campaign to strengthen the currency.

Yet it recouped much of its losses by day's end, and traders say it will likely resume its rally -- albeit at a slower pace -- as global investors put money into U.S. financial markets, creating demand for the currency.

``You're seeing some jawboning to slow the rapid rise of the dollar, but interest rate differentials still favor'' it, said Russ LaScala, manager of spot currency trading at Citibank in New York. Relatively high interest rates in the U.S. lure investors to deposits and other investments in US$s.

The US$ ended North American trading at 1.6562 German marks, down from 1.6625 marks on Friday. It closed at 122.79 Japanese yen, down from 123.20 yen. LaScala said the US$ may rise to 1.68 marks and 125 yen in the next two weeks.

Officials from the G7 nations -- the U.S., Canada, Germany, Japan, Britain, France and Italy -- said in a weekend statement that a ``major misalignment'' in exchange rates had been ``corrected,'' referring to the US$'s long climb from post-Second World War lows against the mark and yen. Traders took the statement as evidence the seven countries don't want to see the US$ rise much further.

In the wake of the meeting, the US$ fell as low as 121.21 yen and 1.6414 marks. Still, when Tokyo traders arrived at their desks yesterday, it quickly rebounded to about 122.50 yen and 1.6480 marks.

Karl Halligan, chief currency trader at CIC Bank in New York, said he bought US$s for marks near the overnight lows. ``No one in the G7 said it should go lower and the economic fundamentals haven't changed,'' Halligan said. ``The dollar is going to go up.''

Robust economic growth, attractive interest rates and a booming stock market are at the root of the US$'s strength, analysts said. ``The general consensus is that nothing has really changed'' since the G7 statement, said Ian Spence, a currency trader at Raboband Nederland.

Nor do traders expect officials in Japan and Germany will be dismayed if the US$ keeps climbing slowly, since a stronger US$ makes their exports more competitive on world markets, at a time when their economies are struggling.

``The Japanese are up the proverbial creek,'' said Ron Leven, currency strategist at J.P. Morgan Securities Inc.

``It's not clear what they can do to get out of the corner they've painted themselves into.''

In April 1995, G7 countries called for an ``orderly reversal'' of the US$'s fall. At that time it was trading close to post-Second World War lows against major currencies. It since has risen about 54% against the yen and 23% versus the German mark. Last week, it reached a four-year high of 124.75 yen and a 32-month high of 1.6751 marks.

In other trading, the British pound rose to US$1.6405 from US$1.6280. The US$ fell to 1.4260 Swiss francs from 1.4285 francs, and to 5.5930 French francs from 5.6010 francs.

The C$ closed lower, falling to US73.82 cents from US74.05 cents Friday. The US$ rose to $1.3546 from $1.3504.

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