Stocks Rally for Second Day, but Dollar Still in Doldrums

From Times Staff and Wire Services

The dollar tumbled in value Wednesday after the Federal Reserve Board's latest boost 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 strong rally. And bond yields were mostly lower for a second day.

Many traders expected the dollar to gain after the Fed raised its two key interest rates half a point Tuesday, signaling an aggressive attempt to keep the economy's growth--and inflation--moderate.

By raising U.S. short-term interest rates, the Fed in theory is supporting the dollar by making short-term securities here more attractive than foreign securities.

But currency traders sold the dollar on Wednesday, in part because the Fed indicated Tuesday that its latest rate increase may be the last for a while.

Also, traders worried that today's government report on the nation's merchandise trade balance for March will reveal another huge deficit. That raised fears that the Clinton Administration could return to a policy of allowing the dollar to weaken in an effort to narrow the trade gap.

In New York, the dollar slid to 1.658 German marks from 1.673 on Tuesday. It also dropped to 103.50 Japanese yen from 104.45.

In the stock market, the Dow industrials added just 12.28 points to 3,732.89 after Tuesday's 49-point surge. But the broad market, which had lagged the Dow on Tuesday, was far stronger.

The Standard & Poor's 500 index jumped 4.32 points, or 1%, to 453.69. The Nasdaq composite index of mostly smaller stocks surged 10.38 points, or 1.5%, to 721.90.

Winners topped losers by 16 to 7 on the New York Stock Exchange and by 15 to 11 on Nasdaq, and trading in both markets was active.

Analysts said more investors were willing to bargain-hunt on the expectation that the bond market is settling down and that Wall Street will again start to focus on stocks' earnings growth rather than on interest rates.

Yields on most bonds eased for a second day, though the euphoria of Tuesday's Fed-induced rally was missing. Yields on one-year Treasury bills fell to 5.17% from 5.27% on Tuesday, and the 10-year T-note yield slipped to 7.02% from 7.05%.

On the 30-year T-bond, the yield edged up to 7.27% from Tuesday's 7.26%. Traders said longer-term bonds were hurt by worries about the dollar's next move. A weak dollar could prompt foreign investors to dump U.S. bonds.

Bonds may also have been held back by another surge in key commodities Wednesday. Massive buying by commodity funds propelled soybean prices to four-month highs, as the market felt the impact of an early Midwestern dry spell that could cut crop yields.

July soybean futures shot up 21.5 cents to $7.02 a bushel.

Oil also rallied after a weekly report showed crude oil inventories fell, suggesting little slack in the refinery system. June crude oil futures rose 40 cents to $17.99 a barrel on the New York Merc.

Among Wednesday's stock market highlights:

* Banking stocks continued to surge, helped by expectations for stable interest rates ahead. Wells Fargo jumped 1 7/8 to 148 3/4, BankAmerica gained 1 to 48 7/8, Chase Manhattan added 3/4 to 37 1/8 and Banc One was up 3/4 to 33.

* Transportation stocks rallied. The Fed's signal Tuesday that it is finished raising rates for a while helped increase confidence in the economic recovery's sustainability.

Among transport issues, Conrail jumped 2 1/2 to 53 1/4, Burlington Northern gained 2 3/8 to 55 1/2, UAL added 2 3/8 to 120 1/4 and Airborne Freight surged 1 3/8 to 37 1/2.

* Rising industrial issues included Scott Paper, up 1 7/8 to 47 3/8; Monsanto, up 1 3/8 to 81 7/8; Nucor, up 1 1/2 to 62 1/2; Alcoa, up 1 1/8 to 71 5/8, and Inland Steel, up 7/8 to 31 1/8.

* Telecom shares were also strong. AT&T; jumped 1 3/8 to 55 1/4, Newbridge Networks gained 2 3/4 to 46 1/2, DSC Communications leaped 1 7/8 to 57 3/4 and Nextel Communications soared 3 3/4 to 34 1/4.

* On the downside, Woolworth fell 2 to 15. It reported a first-quarter loss and announced that an internal probe of accounting irregularities uncovered no wrongdoing by management.

In foreign markets, London's FTSE-100 index eased 7 points to 3,116.5 while Frankfurt's DAX index added 7.70 points to 2,267.41.

In Hong Kong, the Hang Seng index surged 431.94 points to 9,476.64. Tokyo's Nikkei index added 19.20 points to 20,152.73.

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