Another Low for Dollar; Dow Holds
The dollar set another 50-year low against the Japanese yen Tuesday, falling as low as 96.55 yen before recovering to 97.50 in New York, off from 97.75 on Monday. It also fell against the German mark.
Blue chip stocks ended little changed after the weakness in the dollar dampened the impact of upbeat economic news and solid corporate earnings. During the day, the Dow industrials slid more than 30 points and then recovered.
Some stock analysts believe it is only a matter of time before the Federal Reserve Board will be forced to defend the greenback by raising short-term interest rates.
Surprisingly good second-quarter earnings from Motorola also failed to snap Wall Street out of its dollar fixation.
A better market mood, coupled with Motorola’s results, could have written a different story, said Bill Allyn, an analyst at Jefferies & Co. “We could have had a bang-up day,” he said.
Concerns about the dollar overshadowed two reports that showed inflation is in check.
The Labor Department said wholesale prices held steady in June and even fell 0.1% when the volatile food and energy sectors are excluded. Economists had predicted a rise in the overall producer price index of 0.3% and a gain in the core rate of 0.2%. The Federal Reserve Bank of Atlanta also reported minimal pricing pressures.
Bond yields dipped. The 30-year Treasury bond closed at 7.68%.
But uncertainty over whether the dollar’s doldrums and the economy’s strength will push the Fed into ratcheting up interest rates is keeping investors cautious, analysts said.
“Everybody’s sitting on their hands, waiting to see what the Fed does,” said Tony Dwyer, chief strategist at Sherwood Research.
Meanwhile, the release of quarterly corporate earnings reports began in earnest, and investors were making good on earlier promises to treat disappointments harshly.
Philip Morris fell 3/4 to 53 1/8 after the company reported net income of $1.42 per share in the second quarter, compared to $1.19 a year ago. The earnings were about on target with analysts’ expectations.
Goodyear declined 1 3/4 to 35 after the tire maker said its second-quarter earnings would be below analysts’ expectations.
Motorola was the volume leader on the New York Stock Exchange and rose 5 3/8 to 50 1/8. The company said late Monday that its second-quarter profit jumped 64% to 63 cents a share, from 40 cents a year earlier, on sharply higher sales.
Abbott Labs declined 2 1/8 to 26 7/8 after saying Monday that its second-quarter profit totaled 46 cents a share, up from 42 cents in the year-ago quarter and 1 cent below analysts’ expectations.
Birmingham Steel fell 1 5/8 to 26 3/4 after the company lowered its fourth-quarter earnings estimate to about 30 cents a share after saying just last week that it could earn 40 cents a share.
Other highlights:
Semiconductor stocks fell after a trade association released disappointing data on product bookings in June. National Semiconductor lost 1/2 to 17 7/8.
Despite Motorola’s gains, semiconductor stocks came under pressure after the June book-to-bill report on industry demand fell to 1.08 from 1.13 in May. Advanced Micro Devices slipped 1/4 to 26 3/4 and Cirrus Logic shed 3/4 to 32 1/4. But Intel rose 1/64 to 60 1/8, recovering from a session low of 59.
United Airlines parent UAL ended off 1 5/8 at 128 1/8. It said an employee buyout of the company had been approved.
Ball rose 1 1/4 to 25 7/8, getting a lift from a Salomon Bros. upgrade to “buy” from “hold.”
On Nasdaq, Diasonics added 1 13/16 to 5 5/16 when Elbit Ltd. said it would acquire it for $5.50 a share.
In London, the FTSE-100 index closed down 19.9 points at 2,963.9. Dollar worries were blamed. The Frankfurt DAX index closed 0.85% lower. Investors held off, mistrustful of strong bond price gains. Other European markets were lower, especially Zurich, which was affected by a Roche Holdings drop of 5.6% after the Swiss drug company reported a small increase in first-half sales.
Tokyo stocks ended slightly down after another day of directionless trade. The Nikkei-225 average ended off 72.61 points at 20,400.48.
Hong Kong shares closed sharply higher on a technical rebound following a recent selloff. The blue chip Hang Seng Index was up 196.51 points to close at 8,591.45.
