Dollar Climbs, Pulling Stocks, Bonds With It
The battered dollar rebounded slightly Wednesday against the Japanese yen, bringing at least temporary relief to stock and bond markets.
After Tuesday’s brief drop below the psychologically key 100-yen level, the dollar finished Wednesday at 100.95 yen in New York, up from Tuesday’s postwar closing low of 100.35.
Comments Wednesday by Treasury Secretary Lloyd Bentsen, who said the United States and other industrial nations are ready to act if necessary in response to the recent plunge in the dollar, caused speculators to pull back from another attack on the dollar, traders said.
Major governments “probably have more than one ace up their sleeve,” said Dennis Pettit, foreign exchange manager at Long-Term Credit Bank of Japan.
The steadier dollar helped the stock market snap a three-session string of losses. The Dow industrials added 16.80 points to 3,724.77, after falling more than 100 points over the prior three sessions.
In the broad market, advancing issues outpaced declines on the New York Stock Exchange by about 3 to 2, though volume eased to 251.1 million shares.
Stocks were also aided by a strong bond rally. Interest rates slid as grain and gold prices plunged again, dampening inflation worries. The Commodity Research Bureau index of major commodities slumped 3.42 points to 230.87.
Gold lost $4.80 to $389.50 an ounce, after jumping $5.40 on Tuesday.
Also, traders were surprised by better-than-expected demand at the Treasury’s auction of $11 billion in five-year notes. The high yield on the notes was 6.77%, down from 6.78% at the May auction.
The yield on the benchmark 30-year T-bond, which hit 7.49% on Tuesday, dropped to 7.40%.
Many traders said the dollar’s relative stability was key for stock and bond markets Wednesday, because a continuing plunge in the dollar would have raised fears that foreign investors would bail out of U.S. securities, especially bonds.
“The dollar is doing better, so bonds are doing better,” said Neil DeSarno, head U.S. bond trader at S.G. Warburg & Co.
The dollar inched higher against the German mark as well, to 1.605 marks from 1.594 on Tuesday.
But despite reassuring comments about the economy and the dollar from Bentsen and Federal Reserve Board Chairman Alan Greenspan, many Wall Streeters say they aren’t convinced that the dollar’s rebound is sustainable.
Because of the ballooning U.S. trade deficit and attractive short-term interest rates in Europe, global investors may continue to view dollar-denominated securities with relative disdain, some experts say.
Paul Wong, head of foreign exchange trading at Bank of Boston, said the market, which had been expecting Bentsen to signal “an actual intervention” and was presented with “words instead of deeds,” may be prepared to sell the currency further.
“What the market will do now is force the dollar to a level where the central banks will have to come in, whether it is at 100 yen or 99 yen or 98,” Wong said. “It will be a continuous test of the Group of Seven governments’ resolve.”
Wall Streeters say any further decline in the dollar could lead to renewed selloffs in stock and bond markets.
Among Wednesday’s stock market highlights:
* Mild recoveries in downtrodden European markets helped put American investors in a buying mood. London’s FTSE-100 index gained 20.2 points to 2,960.4 points, while Frankfurt’s DAX average inched up 11.15 points to 1,994.42.
But Tokyo’s Nikkei index sank 231.84 points to 20,581.32, and Mexico City’s Bolsa index was off 0.06 point at 2,257.63.
* In the United States, industrial stocks led the market higher. PPG Industries jumped 7/8 to 39, Great Lakes Chemical surged 2 3/8 to 57 3/8, Clark Equipment rose 1 1/4 to 62 1/2, Eaton added 1 1/8 to 54 and Chrysler was up 3/4 to 47 3/4.
* Technology stocks also rebounded. IBM rose 1 to 62, Texas Instruments leaped 2 1/4 to 76 1/2, Intel jumped 1 5/8 to 59 5/8 and Computer Sciences shot up 1 5/8 to 43 1/2.
* On the downside, Zenith Laboratories tumbled 1 3/4 to 14 1/8. It said it received a warning letter from the Food and Drug Administration on testing procedures at a plant in Puerto Rico.
Also in the drug group, Amgen fell 2 3/8 to 42 7/8 after Genetics Institute filed a patent lawsuit against Johnson & Johnson over the anti-anemia drug licensed to J&J; by Amgen. But Amgen says it sees no impact on its patent protection.
* Southland racetrack owner Hollywood Park gained 7/8 to 21 3/4. It said its new Inglewood card club casino will open Friday.
* General Electric lost 1/4 to 45 7/8 after the company said the chief executive of its Kidder Peabody brokerage unit, Michael A. Carpenter, had resigned.
* Sheffield Medical Technologies, a medical development company, climbed 1 3/16 to 5 3/4 on news that it acquired a worldwide license to an HIV-AIDS vaccine technology under development.
* American Paging fell 1 5/8 to 6 5/8 after saying late Tuesday that its operating income and cash flow over the next few quarters may be lower than expected.
* Silicon Graphics spurted 2 3/4 to 21 3/4 after the company and AT&T; announced a joint venture to sell “video servers” that will deliver TV programs, movies and music through communications systems.
