$1.6-Billion Trade Deficit Fall Sets Off Stocks Rally : Dow Climbs 61.01 While Dollar Rises

The nation’s trade deficit decreased by a strong $1.6 billion in September, the government said today in a report that gave a strong lift to stocks and the dollar.

The Commerce Department said the trade deficit narrowed to $14.08 billion in September from $15.68 billion in August, suggesting that the U.S. trade picture was brightening even before October’s stock market crash.

The report marked the lowest trade shortfall in four months and touched off a rally in the financial markets.

The Dow Jones industrial average surged 61.01 points to 1,960.21, while the dollar, which had sunk to new 40-year lows earlier in the week, rallied strongly in New York, rising more than 1 yen in value to 136.35 yen. It also was sharply higher against European currencies.

Major Concern Eased

Stock traders said the improved trade outlook lifted a major worry from the market, whose attention returned to the talks in Washington to cut the huge federal budget deficit.

Volume on the New York Stock exchange was 206.28 million shares today, compared to 184.31 million shares Wednesday.

Currency traders said that the improvement in the trade figures, although welcome, was still painfully slow.

“This buys some time for the dollar. But it’s still an awfully large number,” said Steven Cerier of Manufacturers Hanover Trust Co. in New York.

Oil Imports Decline

Although much of the trade improvement came from a decline in oil imports, imports of manufactured goods also fell, while exports of U.S.-made products rose sharply.

Economists took this as a sign that the long-awaited turnabout in trade accounts from a declining dollar may have finally begun, and that it started weeks before the Oct. 19 stock market collapse.

Last month’s disappointing report on the August trade deficit, which showed a smaller than anticipated improvement from the $16.5-billion shortfall in July, has been widely cited as one of the factors that helped trigger the stock market collapse.

“Two and a half years after the dollar peaked, we are finally seeing an effect on both imports and exports,” said Robert Wescott, chief economist for Alphametrics, a Philadelphia forecasting service.

Imports More Costly

A lower-valued dollar makes imports more expensive and U.S. goods more competitive abroad. White House spokesman Marlin Fitzwater said the new figures were “especially encouraging” because they included a gain in the export of manufactured goods. “These numbers should be received well,” he said.

The trade report, the best since a $14-billion deficit in May, showed an improvement with all of the nation’s major trading partners except Canada.

Imports declined to $35.1 billion from $35.9 billion in August, while exports rose over the same period from $20.2 billion to $21 billion.

Petroleum Products Down

Imports of petroleum products dropped to $3.9 billion from $4.7 billion in August. Oil prices are not directly affected by changes in the value of the dollar because oil is sold in international markets for dollars.

But imports of manufactured goods, which are sensitive to dollar fluctuations, fell to $26.6 billion, down from $26.9 billion. Exports of U.S.-manufactured goods, meanwhile, were up $1.1 billion to $14.8 billion.

Analysts cautioned against reading too much into a single month’s figures. And for the first nine months of 1987, the trade deficit was still growing at an annual rate of $166.9 billion, larger than the record $156.2-billion deficit in 1986.