FINANCIAL MARKETS : Dollar’s Rally Helps Lift Dow to a New High
Wall Street stocks edged up to another record close Thursday as a round of increases in European interest rates blunted the rally that has carried the market to record highs this week.
The Dow Jones average of 30 industrials rose 2.47 to 2,773.56, hitting a new high for the third straight session.
Since the start of the week the average has climbed 80.74 points.
Advancing issues and declines were evenly balanced in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume totaled 177.89 million shares, down from 194.59 million Wednesday.
The market started out slightly lower on news that European countries had hiked their interest rates to slap down the dollar.
But the dollar’s rebound despite the rate increases helped the stock market regain its form and a bond market rally lent background support in the afternoon.
The dollar initially declined on the news, reflecting the expectation that higher rates in Europe would attract money away from U.S. investments but later rebounded in foreign exchange dealings.
Monte Gordon, Dreyfus Corp.’s director of research, said the market’s performance was commendable in light of the interest rate actions overseas. The extent of the increase surprised some analysts.
“A full-point rise suggests the market should have been shook up,” he said. “(But) apparently, there is still some latent buying power.”
Analysts said the increases in Europe did not catch Wall Street totally by surprise. In addition, analysts said stock traders’ spirits were energized by an offer from investor Donald J. Trump to acquire AMR Corp. for $120 a share.
AMR shares jumped 16 7/8 to 99 7/8 as the most active Big Board issue. Delta Air Lines, one of the few remaining major carriers that has not attracted a takeover bid, gained 3 1/2 to 78 1/4.
The demand for those stocks helped send the Dow Jones average of 20 transportation issues up 31.65 to 1,498.75.
Paramount Communications, another prime focus of takeover rumors and speculation, rose 3 3/4 to 62.
Gainers among the blue-chip industrials included Philip Morris, up 3 3/4 at 175; American Telephone & Telegraph, up 1/4 at 45; Chevron, up 1 7/8 at 64 3/4, and Eli Lilly, up 3/8 at 65.
National Education dropped 5/8 to 12. The company said it expects a loss for the third quarter and looks for fourth-quarter revenue down significantly from last year’s period.
Microsoft climbed 3 3/4 to 79 1/4 in the over-the-counter market on top of a 6 1/2-point gain Wednesday, when the company said it expects to report a 34% revenue increase for its fiscal first quarter ended Sept. 30.
In Tokyo, index-linked buying, possibly by investment trust funds, drove prices up just before the close in brisk trading, dealers said. The 225-share Nikkei average climbed 140.19 to close at 35,522.99.
A round of interest rate hikes in nine Western European countries, sparked by West Germany’s Bundesbank raising its two key interest rates, took a heavy toll on British stocks. The Financial Times 100 blue chips nose-dived 30.5 to close at 2,281.6.
Credit
Bond prices advanced broadly in the credit markets as the dollar pushed higher despite increases in foreign interest rates.
The Treasury’s benchmark 30-year bond gained a full point, or $10 for every $1,000 in face value. Its yield dropped to 8.07% from 8.16% late Wednesday.
Early in the session, bond prices held fairly steady as the central banks in West Germany and Great Britain raised key lending rates in moves designed to curb the dollar’s recent rise.
Higher rates abroad would normally put U.S. rates at a competitive disadvantage. But the dollar continued to rise, and that contributed to a surge in bond prices.
“This indicates a powerful underlying demand for dollars,” said Elliott Platt, fixed-income research director for Donaldson, Lufkin & Jenrette Securities Corp.
Advances by the dollar make U.S. Treasury notes and bonds and other securities denominated in dollars more attractive to foreign investors.
The dollar-led rally in the bond market occurred on the eve of the release of some important economic statistics in the September employment report.
Many analysts expect non-farm payroll growth of more than double August’s total of 110,000, but they say a major reason for the increase will be the return of 70,000 or so striking communications workers to their jobs.
In the secondary market for Treasury bonds, prices of short-term governments rose 1/4 point, intermediate maturities climbed by between 3/8 point and 9/16 point and long-term issues rose as much as 1-3/32 point, according to Telerate Inc., the financial information service.
The movement of a point equals a change of $10 in the price of a $1,000 bond.
The federal funds rate, the interest on overnight loans between banks, was quoted at 9%, up from 8.25% late Wednesday, when the rate was unusually low because of technical reasons related to the end of a bank reserve reporting period.
Commodities
Prices of precious metals futures slumped in a disappointed reaction to the dollar’s late surge in value against other major currencies after a rise in European interest rates.
On other commodity markets, energy futures retreated, coffee futures fell again, grains and soybeans were mixed, and livestock and meat were mixed.
On New York’s Commodity Exchange, gold futures settled $3.60 lower across the board with the contract for delivery in October at $363.40 an ounce; silver was 8.2 cents to 9.3 cents lower with December at $5.243 an ounce.
The slide marked the biggest daily move in gold prices since Sept. 25, but the market did not fall out of its recent trading range.
The metals closely followed foreign currencies, which rallied in relation to the dollar early in the day only to end lower as the dollar advanced.
The early rally was kicked off by West Germany’s decision to raise its key interest rate a full percentage point, forcing other European countries to follow suit.
Heating oil futures fell sharply and most other energy futures also declined on the New York Mercantile Exchange.
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