Dow Rises 4.05 as the Battered Dollar Steadies : Market Overview
* Calm returned to Wall Street on Tuesday after four straight sessions of losses as a steadier dollar enabled blue chip stocks to close slightly higher. The Dow Jones industrial average rose 4.05 points to close at 3,232.22. But buyers were still in short supply, a fact borne out by losses in broader market indicators.
* The dollar hit an all-time low of 1.3945 German marks in early trading after a French opinion poll showed a majority against Europe’s Maastricht treaty on economic and monetary union. But the U.S. currency later bounced back to close only slightly down.
Stocks
Losers led gainers 986 to 734 on the New York Stock Exchange as volume swelled to about 202.8 million shares from 165.7 million Monday.
There were several French polls on the Maastricht treaty on European unity. While the first showed 51% against the treaty, a second survey showed 51% in favor.
The first survey triggered a sharp sell-off in the dollar, which quickly spread to the stock market, where the Dow lost as much as 21 points.
Technical analyst Jack Solomon at Bear, Stearns & Co. said stock prices could be poised to go higher. “The fluctuations (in the dollar) seem to be tamping down,” he added.
A rise in IBM, which added 2 to 87 1/8, helped strengthen the Dow.
Several analysts said IBM’s gain could reflect assumptions that multinational companies will benefit from the dollar’s weakness.
“You’re going to get some very strong effects for companies that do a lot of business overseas,” said strategist Ron Hill of Brown Bros., Harriman & Co.
“The market is trying to right itself,” said Ed Laux, Kidder, Peabody & Co. senior vice president. “This (Dow rise) is probably an encouraging sign.”
But analysts said much of the economic news remains tepid. August consumer confidence index fell to 58.0 from July’s 61.2.
“People continue to be worried about their jobs and the value of their houses,” said Hersh Cohen, president of Shearson Asset Management.
“We have two candidates (for President), and the country doesn’t like either of them very much.”
Among the day’s trading highlights:
* Several analysts said drug companies should benefit from the dollar’s weakness because many have significant overseas operations. Merck rose 5/8 to 51, Pfizer added 1/2 to 80 1/2, and Bristol-Myers rose 1 1/2 to 67 1/4.
* Picturetel slumped 4 1/4 to 11 1/4 after saying it expects to break even in the third quarter on revenue that is flat or slightly lower in contrast to the second quarter. Hambrecht & Quist Inc. and Alex. Brown & Sons cut ratings.
* Ford Motor Co. gained 1 3/8 to 40 1/8. It said domestic car sales from Aug. 11 to 20 rose 13.7%.
* Seibels Bruce slipped 3 to 2 5/8. Lincoln National’s American States said it canceled a planned merger with Seibels because of losses at Seibels Bruce resulting from Hurricane Andrew.
* Grand Metropolitan fell 2 1/2 to 30 after it issued a profit warning. Morgan Stanley downgraded its rating.
* Traders said Donaldson, Lufkin Jenrette cut its estimate on Costco, which fell 2 1/8 to 22 5/8.
In overseas trading, London stocks closed at a 1992 low but above the day’s lows, influenced by opinion polls showing strong French opposition to the Maastricht treaty and fears of an imminent rise in British interest rates. The Financial Times index of 100 leading shares fell 30.1 to 2,281.
In Frankfurt, gloom over the weak dollar and high interest rates sent German stocks plunging 2% to an 18-month closing low. The 30-share DAX index fell 29.83 points to end at 1,468.91.
In Tokyo, stocks ended lower in seesaw trading on a healthy volume. The 225-share Nikkei average was down 247.19 points, or 1.49%, at 16,380.77.
Credit
Treasury bond prices fell late Tuesday after rising during the day as the dollar weakened and economic news failed to provide a boost to offset the tumble in both markets.
The price of the Treasury’s main 30-year bond was down 5/16 point, or $3.13 per $1,000 in face amount. Its yield, which rises when prices fall, was 7.47%, up from 7.44% late Monday.
“The dollar rout that began on Friday and continued this week is really responsible for the weakness we’ve seen in the bond market and there is nothing compelling in the data to reverse that trend,” said Tony Vignola, chief economist at Kidder Peabody.
“The dollar is the predominant factor in the behavior of the market and the concern of investors,” Vignola said.
The federal funds rate, the interest on overnight loans between banks, held steady at 3.3125%.
Currency
The dollar continued its precipitous decline against the German mark Tuesday but ended mixed against some other leading currencies in hectic trading.
The dollar fell as low as 1.3945 marks before making a recovery, but the U.S. currency still closed at a record low.
In New York trading, the dollar settled at 1.4015 marks, below Monday’s record low close of 1.4020 marks. In European trading, the dollar settled at 1.4020 marks.
The dollar has been hammered in recent days because U.S. interest rates are extremely low compared to those in Germany. Higher German interest rates, now are as much as 6 percentage points above U.S. rates, make mark-denominated investments more attractive to investors.
In addition, the continued weakness of the U.S. economy is keeping pressure on the Federal Reserve to drive interest rates even lower.
In New York, the dollar settled at 124.55 yen, down from 124.60 yen Monday. It cost $1.9895 to buy one British pound, less than Monday’s $1.9920.
Commodities
Oil prices retreated from sharp gains posted the day before as fears receded that Hurricane Andrew would wreak lasting damage on oil rigs and refineries along the U.S. Gulf Coast.
“We’re still at the mercy of the hurricane,” said Tom Blakeslee, analyst at Pegasus Econometric. But he said other factors--increased OPEC crude oil production and seasonal increases in North Sea output--pointed to lower prices.
“The hurricane probably won’t do lasting damage to oil refineries so the market couldn’t sustain (Monday’s) short-covering effort,” said analyst Jim Steel of Refco.
Several oil companies were in the process of shutting down refinery operations along the Texas and Louisiana coastline, and some traders noted that backed-up refineries might sell crude oil, weighing on the market.
October crude oil sank 39 cents to $21.15 a barrel, giving back most of Monday’s 46-cent gain. September unleaded gasoline dropped 0.60 of a cent to 62.13 cents a gallon, and September heating oil fell 1.08 cents to 58.23 cents a gallon.
Cotton prices also receded after reaching the maximum gain Monday based on thinking that hurricane-driven rains would swamp Mississippi Delta crops.
October cotton, which jumped 2 cents a pound Monday at the New York Cotton Exchange, fell 1.23 cents to close at 58.95 cents a pound.
Gold fell $1 an ounce to $340.60 on New York’s Commodity Exchange as the slide of the U.S. dollar slowed.
September silver was 1.5 cents lower at $3.702 an ounce on perceptions the U.S. economy continues to falter, making it unlikely industrial demand for the metal will pick up.
