Dollar Drops as Fear Still Grips Europe : Market Overview
* The dollar gave back part of Wednesday’s big gains as turmoil continued in European currency markets, though traders said activity was beginning to calm down.
* U.S. stocks eased in a session clouded by uncertainty over the currency crisis and today’s triple-witching options expiration. But London stocks soared to a 4.4% gain on expectations of lower British interest rates.
Currency
Shell-shocked traders began to recover after the wildest trading in memory hit world currency markets Wednesday, leaving the European Monetary System in tatters.
But analysts said the crisis could not be declared over until France delivers a crucial vote on European economic union Sunday. A no vote could ignite turmoil once again.
“It seems like the calm after the storm,” said one currency futures trader in Chicago. “Everybody looks dead tired.”
One byproduct of the calm was that the dollar surrendered some of the big gains it had realized Wednesday, when traders fled European currencies and bought the dollar for safe haven.
With Britain and Italy allowing their currencies to float freely for the first time in years, traders focused on how Europe’s currency realignment might shake out.
“The dollar is a second or third issue on the agenda right now,” said John Nelson at ABN Amro Bank in New York. “The primary issue is the stability of the European Monetary System and its continued existence.”
The dollar also was hurt by the failure of Germany to lower interest rates in the European realignment plan announced Thursday.
In New York, the dollar closed at 1.479 marks, down from 1.514 Wednesday. It fell to 1,239 Italian lira from 1,255.
The British pound closed in New York even with Wednesday, at $1.788, as heat on the British currency dissipated after a volatile session in London.
Against the Japanese yen, the dollar closed at 124.40, down from 125.15 Wednesday.
Stocks
Wall Street also enjoyed calm, as many investors pulled back to assess the situation. After meandering in a 17-point band, the Dow Jones industrials closed down 3.51 points at 3,315.70.
Overseas, share prices rallied in active trading. In London the 100-share Financial Times average surged 105.6 points, or 4.4%, to 2,483.9 on volume of 1.36 billion shares, highest since 1987.
British investors were reacting to expectations that British interest rates will soon come down, now that Britain has chosen not to defend its currency.
But Frankfurt stocks sank again. The 30-share DAX average fell 5.89 points to 1,578.67.
Stocks staged a technical rebound in Tokyo. The 225-share Nikkei average rose 171.82 points to 18,116.52.
On the New York Stock Exchange, declining issues outnumbered advances 6 to 5. Volume was 188.3 million shares, down from 231.6 million Wednesday.
One piece of good news: Smaller stocks continued to pick up steam. Traders have noticed a change in sentiment toward smaller issues in recent weeks. The NASDAQ composite index gained 1.93 points to 587.82.
Traders will be leery today of potential swings owing to the quarterly expiration of key stock options contracts.
Among the market highlights:
* It was mostly a stock picker’s day rather than a day of group movement. Among the winners, Intel advanced 3/4 to 64 1/2 on news that it will initiate a quarterly cash dividend of 10 cents a share.
Elsewhere, Mattel rose 7/8 to 25 after saying that it has more toy orders than it can fill for Christmas.
Also gaining was biotech firm Biogen, up 2 5/8 to 32 5/8 after Bear Stearns reiterated a buy.
* In takeover news, Constar, a maker of plastic containers, rocketed 7 7/8 to 32 1/4 after Crown Cork & Seal started a takeover offer at 32 1/2 a share.
Also, Virginia’s Dominion Bankshares added 2 1/2 to 16 7/8 after saying that it was in merger talks with an unidentified party.
* Among the day’s losers, food giant Borden dropped 1 1/4 to 26 3/4, and pet-food maker Ralston Purina slumped 5 3/8 to 43 3/4. Both issued disappointing earnings projections.
* U.S. Surgical tumbled 4 3/8 to 65 1/2 after Merrill Lynch cut its rating and estimate for 1992, citing concerns about the third quarter.
* Software firm Cadence Design fell 2 1/2 to 16 1/2. Alex. Brown cut its rating to neutral from buy.
Credit
Interest rates closed little changed as bond investors charted currency moves. The yield on the Treasury’s main 30-year bond was unchanged at 7.33%.
The crisis in Europe created wild swings in the U.S. bond market Wednesday. On Thursday, traders said investors wanted no part of the volatility.
The fed funds rate, the rate on overnight loans between banks, rose to 3.25% from 3.125% Wednesday.
Commodities
Precious metal futures eased on New York’s Comex. September gold lost $1.90 to $347.90 an ounce and silver fell 5.5 cents to $3.77.
Crude oil prices ended slightly lower in choppy trading on the New York Merc as OPEC ministers agreed to hold production steady for the rest of the year. Light, sweet crude for October fell 9 cents to $22.30 a barrel.
