WASHINGTON, May 1 (Reuters) - U.S. Treasury Secretary Paul O'Neill said on Wednesday that governments cannot permanently sway currency values with rhetoric or market intervention, but his own words sent the U.S. dollar plunging against the world's major currencies. O'Neill, in an impromptu statement at the beginning of testimony before the Senate Banking Committee, flatly warned that he was not about to give currency speculators any "ammunition" by implying any change was forthcoming in the strong-dollar policy of the United States. He said only speculators benefit from swings in foreign-exchange values and "I don't want to give them any ammunition to say that there's a basis for roiling the world currency markets out of our conversation here this morning." That "conversation" brought turmoil as markets were disappointed that O'Neill did not call for a strong dollar more forcefully. The U.S. dollar fell sharply against other currencies as a result, and also because markets inferred that O'Neill's comment that intervention was not effective meant he had no intention of opening his tool kit to counteract the recent slide in the dollar. I thought Jim Baker, by virtue of having pretty much personally instigated the 1987 stock market crash, had locked up the title of "Worst Tres. Sec." in the Modern Era. Now this guy Paul O'Neill seems determined to try to take that title himself. He got off to a good start by doing his best to undermine the administration's central economic policy initiative, tax cuts. As the former CEO of Alcoa, he had little credibility from the get-go with the strong dollar crowd and has done his best to forfeit that. Today's testimony might seem innocuous on the surface, but the market's sharp reaction belies that. A ritual developed during the reign of Bob Rubin that any question about the dollar was met with a rote recitation that the US policy was to maintain a strong dollar and a strong dollar was good for America. There waas a good reason for this ritual. Market observers are constantly on the watch for the slightest hint of a policy change. Any off-the-cuff wording could be misinterpreted. So you go by the script. Of course O'neill knows all this. So when he goes off on a tangent, market players sense blood, particularly as the weak dollar whiners from the NAM were testifying. What's wrong with a slightly weaker buck? We have a humongous current account deficit to finance every month. Any hint that the administration is going to play trade politics with the world's reserve currency could create huge problems financing that deficit. See 1987, as in market crash.