Dollar Hits Another Low Against Mark : Markets: Despite the slump, stocks gain and bond yields ease. The Dow industrials rose 8.91 points to 3,266.26.
The dollar slid to a new all-time low against the German mark Tuesday, but Wall Street avoided the turmoil that accompanied the currency’s late-August plunge.
A spate of weak U.S. economic reports caused a flurry of dollar-selling, driving the dollar down to 1.390 marks at the close in New York from 1.403 on Monday. Tuesday’s close eclipsed the previous all-time low of 1.394 marks reached during trading on Aug. 25.
The dollar also fell sharply in value against other key currencies, including the Japanese yen, which closed at 122.65 to the dollar in New York versus 123.10 Monday.
Early today in Asia, the dollar’s downdraft continued, as the currency bought just 1.389 marks and 122.45 yen.
Tuesday’s surprise was that stock and bond investors failed to show much concern about the dollar’s new plunge. The Dow Jones industrial average gained 8.91 points to 3,266.26, and advancing issues led losers 945 to 738 on the New York Stock Exchange.
When the U.S. currency began to fall sharply on Aug. 20, it set off a chain reaction that sent stocks plummeting and pushed bond yields up. Investors feared that the Federal Reserve would be forced to raise interest rates to defend the dollar, derailing any chances of a sustained economic rebound and crippling stock and bond markets.
But with the latest indicators suggesting that the economy remains extraordinarily weak for this stage of a recovery, many stock and bond investors appeared to take the view Tuesday that the Fed--and the White House--are willing to sacrifice the dollar if that’s the consequence of keeping interest rates down.
Currency traders now expect the dollar to test new lows in coming weeks. “Given the near-term prospects for the U.S. economy, there is no reason to buy dollars,” said Randolph Donney, research director at Pegasus Econometric.
Because European interest rates remain far higher than U.S. rates, foreign and U.S. investors alike are increasingly switching out of U.S. bonds in favor of European bonds. As they sell bonds here, the switchers are in effect dumping dollars in favor of European currencies.
Tuesday’s dollar slump occurred despite renewed intervention by the Fed and other central banks, which have been buying dollars with their own funds, trying to stem the slide.
That couldn’t stop the dollar from crossing the psychologically important $2 mark against the British pound: It took $2.002 to buy a pound Monday, up from $1.988 on Monday.
Stocks
Stocks’ gains came in lackluster trading, typical for a pre-holiday week.
Volume on the New York Stock Exchange was 172.7 million shares, compared to 160.2 million Monday.
Analysts said that while economic indicators released Tuesday were weak, they were expected to be. Many investors apparently continue to believe that the benefit of a weak economy--low interest rates--outweighs the negative of slower corporate profit growth.
“I think the market is still biding its time, waiting for some more conclusive economic data, or more conclusive election information,” said Robert F. Dickey, an analyst at brokerage Dain Bosworth in Minneapolis.
Downtrodden airline stocks staged the strongest advance of any industry group Tuesday. The move came ahead of scheduled fare hikes this weekend.
AMR, parent of American Air, jumped 1 7/8 to 57 3/8, Delta surged 2 1/2 to 52 1/2, Southwest surged 1 1/8 to 22 3/8, and UAL, parent of United, was up 3 3/8 to 107 1/2.
Eugene Peroni, analyst for Janney Montgomery Scott in Philadelphia, said the airline stocks’ move is a sign that investors are eager to jump into stocks that show any hint of an earnings turnaround.
Among other highlights:
- Strong quarterly earnings reports buoyed a number of stocks, including Litton Industries, up 5/8 to 46 1/8; computer retailer CompUSA, up 2 1/2 to 29 3/8, and plastics firm CIMCO, up 3/8 to 8 1/4.
- Tech stocks continued their recent rebound. Intel rose 1 1/8 to 59 1/8, Adobe Systems leaped 2 1/8 to 34 5/8, IBM added 1 to 87 5/8, Motorola advanced 1 1/8 to 86 1/2, and Rainbow Technologies gained 3/4 to 16 3/4.
- Hurricane Andrew continued to be felt in the financial markets. American Reliance fell 2 5/8 to 17 5/8, a loss of 15%, a day after the New Jersey insurance company predicted large losses because of hurricane damage in southern Florida.
But other insurers rose on expectations that the disaster will allow them to raise insurance rates. AIG gained 2 1/2 to 98 3/4, General Re was up 1 3/4 to 92 3/8, and CNA Financial advanced 1 3/4 to 90 1/8.
- Casino-related stocks staged another rally. Caesars World added 1 to 34 3/4, MGM Grand gained 1 to 17 3/8 and International Game Technology shot up 1 5/8 to 39 3/8.
- Raychem gained 3 to 35 a day after the plastics firm was awarded a large contract from Ameritech for fiber-optic installation in the Midwest.
Overseas, in London, the 100-share Financial Times index fell 14.2 points to 2,298.4, just above a session low of 2,296.5. In Frankfurt, the DAX index lost 22.55 points to 1,518.70, virtually wiping out Monday’s 24.78-point gain.
In Tokyo, the market closed lower in listless, dealer-driven trading. The Nikkei average fell 321.06 points to 17,740.06, with about 550 million shares traded.
Credit
Treasury bond yields eased on news that the economy is still struggling to recover.
The price of the Treasury’s 30-year bond rose 11/32 point, or $3.44 per $1,000. Its yield, which falls when prices rise, dropped to 7.38% from 7.41% Monday.
While foreign investors are selling U.S. bonds to take advantage of higher European yields, traders said demand remains strong by domestic investors trading shorter-term U.S. securities for longer-term ones.
“The dollar hit an all time-low against the German mark and the bond market still didn’t blink,” said Susan Haring, economist at Salomon Bros. in New York.
Still, while worries have dissipated that the Federal Reserve might raise interest rates to stop the dollar’s drop, traders warn that a continuing drop in the dollar could keep the Fed from lowering rates further.
The federal funds rate, the interest on overnight loans between banks, was 3.375%, up from 3.250% from Monday.
Commodities
Wheat prices rallied on anticipation that Russia and other former Soviet republics will obtain new credits from the Bush Administration to buy wheat.
The widespread expectations of new credits drove up September wheat 5.5 cents to $3.25 1/4 a bushel on the Chicago Board of Trade.
Elsewhere, light, sweet crude oil for October rose 16 cents to $21.64 a barrel on the New York Mercantile Exchange.
Precious metal prices fell on New York’s Commodity Exchange, erasing some of Monday’s strong gains amid a lack of investor buying interest.
October gold dropped $1.90 to $341.70 an ounce; September silver fell 1.6 cents to $3.71.
Market Roundup, D6
