FINANCIAL MARKETS : Dollar, Without Backing, Slips; Dow at New High
* The dollar fell back against the Japanese yen Friday in the absence of Federal Reserve Board support, which had pumped up the beleaguered U.S. currency a day earlier.
* A burst of late buying boosted the Dow industrials to a record close, but broader indexes again were mixed. Mexican stocks zoomed to new highs on optimism about the proposed North American Free Trade Agreement.
* Bond yields were mixed, interrupting the rally that has carried long-term yields to historic lows.
Currency
After soaring nearly 5% against the yen Thursday, the dollar closed in New York at 104.35 yen, down from 105.95 on Thursday.
The dollar’s rally had been driven by massive Fed purchases in the wake of news Thursday that the United States posted its biggest trade deficit in six years. That report caused speculators to push the dollar lower--until the Fed stepped in.
The surprise intervention had led traders to believe Japanese officials would also help relieve pressure on the dollar--which has been sliding for months, to consecutive record lows--by enacting tax cuts or other measures to stimulate demand for U.S. exports.
Many players speculated the Fed action was ordered under a “quid pro quo” exchange for concessions from Japanese officials, who have voiced concern over the damage the strong yen is inflicting on corporate profits there.
But Japanese officials threw cold water on such talk, denying they had any deal with the United States. That sent the dollar lower Friday and could result in a new drop next week, traders said.
“The market is anxious to test the Fed” in coming days, said David Durst, a trader at Credit Lyonnais in New York.
The dollar also fell against the German mark and other European currencies. The greenback retreated in New York to 1.676 marks from 1.688 on Thursday.
Stocks
Stocks stayed at modestly lower levels for much of the session as some traders sold to collect profits made during the market’s steady advance this week.
But computerized buy programs helped blue-chips rise in the final minutes. Much of the late buying was tied to trading strategies related to the monthly expiration of stock index options.
The Dow industrials finished at a record 3,615.48, up 3.35 points from Thursday and up 45.83 points for the week. But the broader Standard & Poor’s 500 index eased 0.27 point to 456.16.
Smaller stocks looked better: The Russell 2000 index rose 0.36 point to a new high of 242.95.
Also encouraging was the fact that advancing issues beat losers by small margins on both the New York Stock Exchange and NASDAQ. NYSE volume shrank to 274.64 million shares but still was active for a summer Friday.
Among Friday’s highlights:
* Auto stocks suffered a major round of selling after Salomon Bros. cut earnings estimates for Chrysler and warned that luxury car inventories are too high.
Salomon cut its 1994 estimate for Chrysler to $6 a share from $6.50, saying rising inventories will probably prompt a new round of sales incentives. Chrysler stock tumbled 1 5/8 to 41, dragging Ford down 1 3/8 to 49 1/2 and GM down 7/8 to 44 5/8.
* Despite the slump in auto shares, many other industrial issues inched up. Reynolds Metals gained 7/8 to 49 7/8, Dow Chemical rose 1 to 60 3/8, Nucor added 1 1/8 to 92 1/2 and GE jumped 2 to 98 5/8.
* Consumer-products stocks continued to weaken after rallying early in the week. Kellogg lost 1 5/8 to 51 1/8, General Mills fell 1 1/2 to 61 1/2, Pepsico gave up 1 to 39 1/8, Merck slipped 3/8 to 32 3/4 and Bristol-Myers eased 3/8 to 56 3/8.
* Fisher-Price rocketed 9 1/8 to 33, reflecting Thursday’s news of a planned merger with Mattel. Mattel also gained, rising 1 1/2 to 27 1/8.
Overseas, another round of profit taking sent major markets lower. In Frankfurt, the DAX index sank 16.30 points to 1,922.68. In London, the FTSE-100 index eased 7.9 points to 3,057.6. And in Tokyo, the Nikkei index gave up 80.21 points to 20,607.26.
But in Mexico City, the Bolsa index rocketed 31.42 points to a record 1,909.38, surpassing the old high of 1,907.36 set June 1, 1992. Traders cited renewed buying on optimism that the proposed free trade agreement with the United States and Canada will pass those countries’ legislatures this fall.
Other Markets
Interest rates were mostly higher, but not by much, as investors took profits after the extraordinary recent run in bonds.
The yield on the benchmark 30-year Treasury bond closed at 6.21%, up from the historic low of 6.20% Thursday. Shorter-term yields also inched up.
Elliott Platt, economist at DLJ Securities, said the bond market seemed positioned to rally further, but could be setting itself up for a correction.
“Right now people are fundamentally bullish. But I think they can be in for some disappointment,” Platt said.
Elsewhere, gold futures gained. The near-term contract added $2.10 to $373.40 an ounce. Silver jumped 14.1 cents to $4.79.
Market Roundup, D6
