CREDIT : Dollar’s Rise Pushes Bond Prices Higher

Bond prices bounced back Monday after skidding at the end of last week. Analysts credited a rise in the dollar and said that last Friday’s bond selloff may have been deeper than warranted.

Blue chip stocks also rallied, dispelling fears of another “blue Monday” on Wall Street as the market showed signs of steadying after last Friday’s 140-point drop. The Dow Jones index of 30 industrials closed up 33.82 at 1,945.13. Other broader market measures were less strong, however.

The Treasury’s bellwether 30-year bond rose 1/2 point, or $5 for every $1,000 in face value, after dropping more than $18 on Friday on a report of stronger than expected employment growth for December. Its yield slipped to 9.08% from 9.13% on Friday.

Maury Harris, chief economist for Paine Webber Inc., said part of Monday’s improvement reflected a reevaluation of the latest employment figures.

“There may have been some overreaction to the employment statistics on Friday,” he said.

Harold Nathan, senior financial economist at Wells Fargo Bank in San Francisco, agreed that “the runoff in prices on Friday was a little overdone.”

But he said a more important reason for Monday’s price rise was the dollar’s stability. “It is trading a little higher on the day,” he said.

The bond market views declines in the dollar as a negative development because they erode the returns available to foreigners who hold U.S. securities and increase domestic inflationary pressures.

Traders Still Cautious

Analysts said bond traders were also heartened by the day’s performance in the stock market, where some feared a huge decline would follow Friday’s 140-point drop in the Dow index.

Nonetheless, analysts said bond traders were hesitant to make big moves in or out of bonds in advance of economic reports set for release later this week.

Among them is the Friday release of U.S. merchandise trade figures for November. A report in October of unexpectedly rapid growth in the nation’s trade deficit was cited as one of the reasons for the Oct. 19 stock market crash.

Meanwhile, interest rates on short-term Treasury securities fell in Monday’s auction to the lowest level in two weeks.

The Treasury Department sold $6.4 billion in three-month bills at an average discount rate of 5.85%, down from 5.90% last week. Another $6.4 billion was sold in six-month bills at an average discount rate of 6.33%, down from 6.35% last week.

The rates were the lowest since Dec. 28, when three-month bills averaged 5.73% and six-month bills sold for 6.32%.

In the secondary market for Treasury bonds, prices of short-term governments rose 3/32 point, intermediate maturities rose 3/8 point and 20-year issues were up 22/32 point, according to Telerate Inc., a financial information network.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, wound up unchanged at 109.97. The Shearson Lehman Bros. composite index, which makes a similar measurement, rose 0.13 to 1,151.55.

Yields on three-month Treasury bills fell 18 basis points to 5.69%. Six-month bills fell 12 basis points to 6.33% and one-year bills fell 7 basis points to 6.68%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.875%, up from 6.75% late Friday.

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