Stocks Rally for Second Day, but Dollar Still in Doldrums
The dollar tumbled against major currencies Wednesday after the Federal Reserve Board’s increase in interest rates failed to restore confidence in the U.S. currency.
But stocks, still basking in the afterglow of the Fed’s tough anti-inflation moves, staged a second-day rally.
Yields on short-term Treasury securities fell further, but the tumbling dollar pushed up long-term Treasury bond yields--disappointing investors hoping for an opposite reaction to the central bank’s action.
Many traders expected the dollar to gain after the Fed raised its discount rate on overnight loans to member banks to 3.5% from 3% and lifted the federal funds rate on overnight loans among banks to 4.25% from 3.75%. Higher rates usually bolster the dollar by making U.S. assets more attractive.
The dollar fell instead, as traders concluded that the Fed probably won’t raise rates again soon and that Tuesday’s increase wasn’t enough to warrant buying the U.S. currency.
The dollar closed in New York at 1.658 German marks and 103.5 Japanese yen, down from 1.672 marks and 104.45 yen the previous session.
On Wall Street, blue chip stocks trailed a sharp broad-market surge that featured rebounds in recently battered technology, transport and utility shares.
The Dow Jones industrial average ended 12.28 points higher at 3,732.89, adding to Tuesday’s 49-point gain. Market measures taken from a wider array of stocks also gained. The New York Stock Exchange composite index rose 2.60 to 250.73; Standard & Poor’s 500-stock index climbed 4.32 to 453.69. The Nasdaq composite index of mostly smaller companies surged 10.38 points to 721.90.
Wednesday’s gains were more dramatic on the broader market, where advancing Big Board stocks outnumbered declining ones by more than 2 to 1 and the trading pace was brisk.
Volume on the NYSE floor came to 337.67 million shares, up from 311.68 million on Tuesday. The total helped the NYSE surpass the $1-trillion level in the value of trades so far in 1994. The exchange said it didn’t reach that milestone last year until June 10, and that was the earliest ever.
In the bond market, the 30-year bond yield edged upward to close at 7.27% from Tuesday’s 7.26%. Its price, which moves in the opposite direction, fell 1/16 point, or 63 cents per $1,000 in face value.
Prices of short-term Treasury securities, meanwhile, ranged from 3/16 point to 7/32 point higher, and intermediate maturities were 1/16 point to 1/4 point higher, the Telerate Inc. financial information service reported.
Among the market highlights:
Banking stocks gained more ground as investors bet that rising short-term rates will enhance their balance sheets. The Big Board’s list of active issues included Citicorp, up 3/4 to 39 5/8, and BankAmerica, up 1 to 48 7/8.
* Prominent among the technology winners was Lotus Development, which jumped 4 3/16 to 55 15/16 in heavy trading.
* Leading transport stocks were Conrail, up 2 1/2 to 53 1/4, and American Airlines parent AMR, up 1 5/8 to 55 3/8. Utility Public Service Enterprise gained 3/4 to 27 1/4.
* General Motors Chief Executive John Smith said he was concerned that the rise in interest rates will slow U.S. sales of cars and trucks. GM fell 1/4 to 54 1/8; Chrysler dropped 1/4 to 46 1/2; Ford slipped 1/2 to 58 7/8.
* Woolworth fell 2 to 15. It said its first-quarter U.S. revenue fell 4.8% and that foreign revenue, expressed in dollars, was off 36%.
* Calgene gained Food and Drug Administration approval of its genetically engineered tomato, but analysts said the next big step will be winning consumer approval. Its stock rose 1/16 to 11 3/8.
* Chevron tumbled 1 3/4 to 86 3/8 after Dean Witter Reynolds reduced estimated earnings for the energy concern.
So-so sessions for the major foreign markets didn’t deter U.S.-based buyers.
Mexico City’s Bolsa index finished 86.59 points, or 3.78%, higher at 2,375.18.
In Hong Kong, the Hang Seng index surged 431.94 points to end at 9,476.64. Tokyo’s 225-share Nikkei closed up 19.20 points at 20,152.73.
In Europe, London’s the Financial Times 100-share average ended at 3,116.5, down 7.7 points, while Germany’s DAX-30 index rose 7.70 to 2,267.41.
In commodities markets, gold, silver and oil prices closed higher.
