The dollar extended its gains against most major currencies Thursday, and the sense of calm spread to the stock and bond markets.
Analysts said the dollar's advance shows that the Clinton Administration had succeeded--at least for now--in its battle to rescue the battered currency.
In New York, the dollar closed at 102.85 Japanese yen, up from 101.85 on Wednesday, and at 1.667 German marks, up from 1.654. The dollar also strengthened elsewhere in Europe on Thursday, a day after it surged worldwide on the U.S.-led support move.
The Federal Reserve Bank of New York and the central banks of 15 other nations intervened heavily in the U.S. and European markets Wednesday, buying up dollars. It was the largest coordinated intervention by the leading industrialized nations since August, 1992. The dollar's rapid decline against key currencies had aroused fears of inflation and capital flight from the United States.
"When we closed over certain levels (Wednesday), a lot of people changed sentiment," said Matt Porio, vice president for foreign exchange at Chase Manhattan Bank. "There's been such a bearish trend since February. This is the biggest sign of life for the dollar in two to three months."
But some analysts said that economic fundamentals--notably robust U.S. growth compared to sluggishness in Europe and Japan--had not supported a weak dollar, and the intervention provided traders with an excuse to reverse course.
A nation's currency tends to strengthen with economic growth, which helps raise the price of stocks, bonds and other assets and thus draws in capital.
Meanwhile, stocks closed modestly lower in quiet trading as traders turned cautious ahead of today's closely watched jobs report for April.
"The smartest thing anybody could say about this market is that it's looking for something to push it one way or another," said Richard Meyer, head equity trader at Ladenburg, Thalmann & Co.
The Dow Jones industrial average fell 1.78 points to 3,695.97. On the New York Stock Exchange, declining issues narrowly outnumbered advancers on Big Board volume totaling 255.69 million shares, down from 267.9 million Wednesday.
The Nasdaq composite index managed to edge up 0.25 to 740.55, even though most small-capitalization stocks finished lower.
Wall Street analysts expect today's report to show that unemployment remained steady at 6.5% and that non-farm payrolls rose by just under 200,000. If the report shows that more people than expected are working, it could be interpreted as potentially inflationary and drive bond and stock prices lower, analysts said.
Stocks were supported through most of the session by a firmer bond market, where the 30-year Treasury yield finished unchanged from Wednesday's 7.33%.
The Dow had moved up more than 15 points early in the session, dipped backed to nearly unchanged, then recovered to post modest gains for most of the afternoon, until last-minute selling pushed it lower.
Bonds rose early in the day in response to the dollar's strength and a Labor Department report saying first-time state unemployment claims rose by 17,000 last week, much more than most economists had expected. Traders viewed the number as a positive harbinger for today's jobs report. A rise in joblessness could ease the market's fear of upward pressure on wages, a key component of inflation.
Among the market highlights:
* Kmart led the action on the NYSE, falling 3/8 to 15 5/8 after reporting that sales in U.S. stores open at least a year slipped 3.2% in April. Gap, which fell 1 1/8 to 47 1/2, said same-store sales were unchanged while total sales rose 10%. Sears rose 1 1/4 to 47 5/8. Its same-store sales advanced 12.3% and overall sales rose 12.4%.
Utilities stocks fell amid fears that another interest rate tightening by the Fed would raise operating costs for utility companies, which tend to borrow heavily in the capital markets for large-scale construction projects.
* American Electric Power finished down 7/8 at 3 1/2, Peoples Energy fell 7/8 to 27 7/8 and FPL Group fell 2 1/8 to 31 3/4.
* Oil stocks rose amid mounting consensus that oil prices will remain steady. Atlantic Richfield rose 2 1/8 to 99 3/8. British Petroleum advanced 2 19/32 to 71 15/32.
* Insurance stocks rose amid sentiment that the downward pressure on premiums is easing. Aetna rose 1 to 53 7/8. Marsh & McLennan rose 2 to 87.
Prices were mixed in overseas trading. In London, the Financial Times 100-share average climbed back above the psychological 3,100 level, closing up 35.5 at 3,106, while Frankfurt's DAX 30-share average ended 13.18 points lower at 2,235.84.
Hong Kong's blue chip Hang Seng index climbed 43.44 points to 8,412.88 after trading lower for most of the day. It hit the year's intra-day low at 8,249.20 in morning trade.
Both the Mexican and Japanese markets were closed for holidays.
Elsewhere, gold prices fell on New York's Comex to $373.60 an ounce, off $3. Silver finished at $5.107 an ounce, down from $5.175 on Wednesday.
Coffee futures topped $1 a pound for the first time in more than 3 1/2 years on speculative buying ignited by tight supplies.
"It's just a buying frenzy," said analyst Judy Ganes of Merrill Lynch & Co.
Green coffee beans for May delivery surged 5.45 cents on New York's Coffee, Sugar & Cocoa Exchange to $1.002 a pound, the highest daily settlement for near-term deliveries since Sept. 5, 1990. The more actively traded July contract rose 4.95 cents to 99.85 cents a pound.
Coffee futures have rallied 27.7 cents this year, or about 38%, as production and exports have dwindled due to nearly five years of low prices and poor growing weather in some producing countries.
Prices have also been driven higher by an agreement among 28 producer countries to hold back up to 20% of normal exports. The countries began retaining shipments Oct. 1 but stopped last week when a 20-day moving price average reached 80 cents a pound.
Their agreement requires the producers to begin releasing the retained stocks when the indicator price reaches 85 cents. It stood at 82.83 cents Thursday.
Crude oil prices also rose strongly in reaction to the outbreak of civil war in Yemen and forecasts of higher demand.
Light, sweet crude oil for June delivery settled at $17.29 a barrel, up 43 cents on the New York Merc.
Yemen, which pumps about 350,000 barrels a day, was plunged into civil war Thursday between historically conservative northern Yemen and the socialist southern part of the country.
Crude oil prices have slowly been recovering from five-year lows on expectations of higher demand and a decision by the Organization of Petroleum Exporting Countries to keep production steady.
Market Roundup, D6