Dollar Rises After Germany Lowers Rates
The dollar closed mostly higher against major foreign currencies Thursday after German and other European central banks lowered key interest rates.
Blue chip stocks rallied to close slightly higher after early losses spurred by news of the mistaken downing of two U.S. Army helicopters in northern Iraq.
Germany’s central bank lowered its discount rate to 5.00% from 5.25% and the Lombard rate to 6.50% from 6.75% effective today.
The greenback closed at 1.7103 German marks in New York, up from 1.7093 on Wednesday. A drop in foreign interest rates usually bolsters the dollar because it makes U.S. investments--which are bought with U.S. dollars--more attractive.
The Lombard rate is the rate at which banks can borrow emergency funds from the central bank. The discount rate is the cheapest form of bank refinancing. Central banks in Switzerland, Austria, the Netherlands, Belgium and Denmark also cut their rates.
Robert Nelson, a foreign exchange dealer at the Royal Bank of Canada, said the dollar did not rally against the mark as much as expected because the mark was being purchased with other foreign currencies using the dollar as an intermediary. That is known as cross-trading.
The Dow Jones industrial average ended up 1.78 points at 3,663.25, having recovered from drop of more than 20 points. Declining issues led advances on the New York Stock Exchange, 1,215 to 923, but analysts said gains in oil company shares, including Dow components Chevron, Texaco and Exxon, boosted the index.
The stock market largely ignored a Labor Department report that first-time claims for jobless benefits jumped by 12,000 last week to 348,000, the highest level in more than a month. Many analysts had expected a decline.
There was also little impact from a report that business inventories rose 0.5% in February while sales increased at a more rapid pace of 1.2%--the biggest gain in either indicator since November.
“The mistakes in the Middle East were costly today,” said Dudley Eppel, managing director of equity trading at Donaldson, Lufkin & Jenrette Securities. “That might have taken some of the traders out of the market.”
He added, “As long as interest rates are not recovering, I think we’re going to struggle with this market.”
Treasury yields finished higher Thursday as the market grew jittery over economic figures due today that could give the Federal Reserve Board an excuse to raise interest rates again. The market is turning its attention to the somewhat obscure capacity utilization report due today.
The price of the Treasury’s main 30-year bond fell 11/32 point, or $3.44 per $1,000 in face value, while its yield rose to 7.28% from 7.25% on Wednesday.
Among trading highlights:
* Technology issues fell for the third consecutive session, led by Motorola, which slid again following a disappointing earnings report Tuesday. Motorola fell 3 7/8 to 91 5/8. Hewlett Packard fell 1 3/4 to 78 7/8.
* Traders linked the rise in oil stocks to the first news out of Iraq, but others said the shares were also helped by upbeat analysts’ comments and higher oil prices.
Chevron, aided by a “buy” recommendation from Salomon Bros., gained 2 3/8 to 88 3/8. Occidental Petroleum rose 7/8 to 16 1/8 after another Salomon upgrade, made because of optimism about the company’s chemical business. Exxon rose 1 1/8 to 62 7/8 and Texaco added 3/8 at 63 3/4.
On the New York Mercantile Exchange, the May oil contract rose 26 cents to end at $16.23 a barrel, a new high for the year.
In other markets:
* Share prices in Hong Kong tumbled on profit taking, ending a string of six consecutive gains as turnover waned again, brokers said. The blue chip Hang Seng index ended just above the day’s low, down 153.13 points at 9,600.63 points.
* Tokyo stocks ended mixed, but dealers said sentiment perked up as investors dismissed the yen’s strength and Japanese political turmoil after Prime Minister Morihiro Hosokawa announced his resignation. The Nikkei average ended 73.21 points lower at 19,987.20, dropping back below the 20,000-level.
* Gold prices rose. On the New York Commodity Exchange, gold for current delivery closed at $378.60 an ounce, up 40 cents.
Market Roundup, D6
DAILY DAIRY / April 14, 1994
New York Volume: 281.60 million shares *
Interest Rates 30-year T-Bond: 7.28% 1-year T-Bill: 4.68%
