Dollar Climbs Sharply After U.S. Intervenes
The dollar ended sharply higher against the German mark and the Japanese yen Wednesday after the Federal Reserve System led the first concerted central bank effort in nearly two years to bolster the battered currency.
On Wall Street, blue chip stocks fell, succumbing to investors’ jitters over the weak dollar and talk of an impending hike in interest rates.
In a well-publicized and coordinated effort, the Fed and central banks from 15 other nations stepped in to the world currency markets to buy dollars.
Dealers said the intervention was heavy and concentrated against the mark. Some estimates suggested that monetary authorities both here and abroad spent between $3 billion and $5 billion.
The effort left the dollar at 1.654 marks in late New York trading, up from 1.637 marks Tuesday, and at 101.85 yen, up from 101.00. Analysts said the coordinated action was prompted by a growing recognition that a weak dollar was detrimental to both the United States and its industrialized partners.
“Two things are in the interest of all (industrialized) nations,” said John Williams, chief economist at Bankers Trust. “One is stability in foreign exchange markets, and the second is the case that a stronger dollar is appropriate to slow the U.S. economy and help spur other economies.”
Back on Wall Street, three days of advancing prices for blue chip stocks provided an incentive for investors to sell and collect profits. The Dow Jones industrials fell 16.66 to 3,697.75 on Big Board volume totaling 267.9 million shares.
Losers outnumbered gainers by about 4 to 3 on the New York Stock Exchange. Broader-market indicators heavily weighted with Big Board-listed issues also lost ground. The NYSE composite sagged 0.61 to 250.75 and Standard & Poor’s 500 stock index slid 1.31 to 451.72.
Smaller stocks fared better than the rest of the market. The Nasdaq Stock Market composite index edged up 0.93 to 740.30
The stock market mirrored movements in the bond market throughout the day and when bonds bobbed off their lows in afternoon trading, stocks followed.
“The focus for equity traders seemed to be the bond market,” said James Schroeder, a market analyst at MMS International in Chicago.
Bond yields edged lower, reversing a morning rise that followed the Treasury Department’s announcement about the size of its next auction.
In addition, new car sales data was lower than expected, soothing inflationary fears, traders said.
The main 30-year bond closed at 7.33%, down from 7.34% on Tuesday. Both equities and bonds have been held back lately by the dollar’s weakness against the Japanese yen, German mark and other key currencies.
A flagging dollar can depress stocks by inducing foreign investors to dump dollar-denominated equities and other holdings. Dollar weakness can also add to inflationary pressures. The specter of higher inflation has spooked the financial markets repeatedly this year.
So, the immediate reaction was relief when the major industrialized countries mounted a joint effort to support the dollar.
Among the market highlights:
* Williams, which has natural gas pipelines and a digital telecommunications network, rose 3 1/4 to 28 3/4 on news that it was studying a $2-billion offer for its Wiltel unit from LDDS Communications, which ended up 1/4 to 23 3/4.
* First Interstate Bancorp rose 1 3/4 to 82 3/4. Its chairman said the bank expected to exceed recently revised estimates for 1994 earnings.
* Allied Clinical Laboratories surged 5 3/8 to 22 5/8 on a takeover offer from National Health Laboratories, which ended off 1/8 to 11 3/4.
* Big Three auto makers were in the spotlight as they announced their April sales. Also, a story in the Wall Street Journal suggested that the major U.S. auto manufacturers haven’t capitalized on opportunities to outmaneuver foreign rivals. General Motors fell 5/8 to 56 3/4 and Ford fell 1 to 60. Chrysler fell 1/8 to 47 in heavy trading.
* Apple Computer rose 2 3/4 to 33 after its investment rating reportedly was raised by Dean Witter Reynolds.
Overseas markets closed lower. Shares fell sharply in London as the Financial Times 100-share average fell 29.5 points, or 0.95%, to 3,070.5.
In Frankfurt, the 30-share DAX average was down 3.27 points at 2,249.02. Mexico’s Bolsa index fell 4.11 points, to 2235.12.
The Tokyo market was closed and will remain so on today for the “Golden Week” holidays.
