FINANCIAL MARKETS : Dollar Halts Dow Rally; Yields Rise
Another slide in the ailing dollar Tuesday ended Wall Street’s attempt to rally out of its funk.
The Dow Jones industrials eased 15.86 points to 3,669.64, on the heels of Monday’s surprise 48.56-point surge.
Elsewhere, yields rebounded in the bond market, hurt by the dollar’s drop and by stronger-than-expected economic news.
After stabilizing Monday in New York, the dollar began to fall again overnight in Asia, and the pressure continued in New York.
At the close Tuesday, the dollar fetched 99.95 yen, its lowest New York close in post-World War II history. The dollar also sold near a 13-month low against the German mark, at 1.577 marks, down from 1.584 on Monday.
Analysts said the dollar was dragged down by comments by Laura Tyson, head of the White House Council of Economic Advisers. She said it was unlikely the United States and Japan could complete a trade deal--viewed as crucial to currency stability in the long run--without a new Japanese government in place.
Those comments overshadowed other Administration members’ attempts to shore up the dollar.
Ironically, the dollar was also hurt in a roundabout way by news of a strong jump in U.S. new home sales in May and by news of soaring consumer confidence.
Normally, a healthy economy should translate into a strong currency. But Tuesday’s economic reports depressed the bond market because they raised the specter of higher inflation and higher interest rates if the economy continues to expand at a brisk pace.
As foreign investors sold U.S. bonds on inflation concerns, they put further downward pressure on the dollar. “It’s a vicious cycle,” one market player said.
The yield on the 30-year Treasury bond ended at 7.52%, up from 7.45% on Monday but down from its midday high of 7.54%.
In the stock market, meanwhile, some analysts admitted they were surprised that the selling wasn’t far worse.
Monday’s rally had been viewed largely as a technical bounce back from last week’s sharp selloff, as the dollar’s woes took center stage.
Tuesday, the Dow was off more than 45 points at midday, but buyers returned in the afternoon. Most broader stock indexes also closed with only minor losses.
Still, “there’s a sour feeling in the market,” said Alan Ackerman, analyst at Reich & Co.
He noted that declining stocks outnumbered advances by about 7 to 4 on the New York Stock Exchange and that even in Monday’s rally, winners and losers were evenly matched--suggesting there is no groundswell of demand for depressed stocks.
Among Tuesday’s highlights:
* Big losers in the Dow included Alcoa, off 1 1/4 to 72 1/8; GM, down 1 1/4 to 51, and Caterpillar, off 1 to 104 1/8.
* Some financial issues were hurt by rising interest rates. J.P. Morgan lost 1 to 62 3/8, First Chicago fell 1 1/8 to 47 7/8, Dean Witter sank 3/4 to 36 5/8 and Federal National Mortgage was off 7/8 at 84.
* On the plus side, many technology issues continued to rebound. Adobe Systems added 1 1/8 to 27, Novell was up 1 1/4 to 16 1/2, Cabletron Systems gained 3 3/8 to 98 3/8 and Computer Sciences shot up 1 5/8 to 43 7/8.
* In one of the first second-quarter earnings reports to hit the market, glass giant Corning reported earnings up 14% in the quarter ended June 19, and its stock gained 1 7/8 to 33 1/8.
Overseas, many markets reported solid gains. In Tokyo, the Nikkei index recouped much of Monday’s 465-point plunge, rising 338.27 points to 20,639.23.
In Frankfurt, the DAX average ended at 2,018.26, up 29.66 points. In London, the FTSE-100 index added 9.1 points to 2,909.0.
In Mexico City, the Bolsa index eased 6.46 points to 2,232.73.
