FINANCIAL MARKETS : Bond Prices, Higher Dollar Boost Stocks
The dollar hit a seven-week high against the Japanese yen and gained on other major currencies Monday as the prospect of higher U.S. interest rates spurred buying.
Stocks recovered Monday from last week’s rout as investors put inflation fears aside and focused on bond prices and the stronger dollar.
The dollar’s gains came just ahead of this week’s $40 billion in U.S. Treasury bond auctions, the first of which is scheduled for today. Traders said some of the dollar’s improvement might have been related to the auctions, with foreign accounts purchasing dollars in order to invest in the securities. But in general, there was a sense that American securities were gaining in favor among investors.
The dominant influence on the dollar was speculation about whether the Federal Reserve Board will raise the cost of credit again soon, foreign exchange dealers said.
Talk of another interest rate increase heightened Friday when the government reported unexpectedly robust growth in employment and wages.
With the Fed’s policy-making panel meeting next week, a perception is spreading that July’s employment report could induce the Federal Open Market Committee to nudge rates up for the fifth time this year. Rising rates would enhance returns on dollar-denominated assets and thereby tend to boost demand for dollars.
At the close of New York trading, the dollar changed hands at 101.52 Japanese yen, compared to 100.25 yen Friday. It was the dollar’s highest level against the yen since its 101.90-yen exchange rate in New York on June 20. The U.S. currency finished at 1.583 German marks, up from 1.581 on Friday.
In the bond market, prices of most Treasury securities barely budged in the absence of any important economic data, as investors awaited this week’s government auctions.
The price of the main 30-year Treasury bond closed unchanged, with its yield holding at 7.54%.
Uneasiness lingering from Friday, when July’s employment report incited a rout in the bond market, left investors reluctant to buy or sell heavily.
Prices of short-term Treasury maturities ranged from unchanged to 1/32 point lower, and intermediate-term Treasuries fell by up to 1/8 point, according to the financial information service Telerate Inc.
On Wall Street, the Dow Jones industrial average rose 6.79 points to 3,753.81. It was the first time the popular blue chip indicator closed higher in four sessions.
Friday’s jobs report also caused a broad selloff in the Dow, sending it down nearly 19 points.
But investors put inflation fears to the side Monday, deciding that the jobs data, though strong, was not as bad as they thought.
Market participants also took comfort in the bond market’s steadying.
Volume on the Big Board was a moderate 217.68 million shares, down from 230.28 million Friday. In the broader market, advancing issues led decliners by about 6 to 5 on the NYSE.
Among the market highlights:
* Telefonos de Mexico was the most active on the NYSE, slipping 1/4 to 62 3/4.
* North American Mortgage rose 3 to 30 5/8. The company said it hired Morgan Stanley & Co. to help it consider options to increase shareholder value.
* Nordstrom rose 1 5/16 on the Nasdaq to 43 9/16. Wertheim Schroder raised its second-quarter earnings estimate for the retailer.
* Mesa Airlines fell 3 7/16 to 6 9/16 on the Nasdaq. Traders said news late Friday that the airline had lowered a forecast of future earnings caused the selloff.
* Buyers purchased Lowes Cos., a building supplies distributor that said sales in the first week of August rose 38% compared to a year ago. Lowes shares ended 1 1/2 higher at 32 1/8.
* Investors also concentrated on economically sensitive issues. Shares of the Big Three auto makers were active: Ford Motor rose 3/8 to 30 1/8, General Motors rose 1/8 to 50 3/8 and Chrysler was up 3/8 to 46 1/4.
Overseas stocks were mixed, with Mexico’s Bolsa index closing down 39.04 points at 2,603.93.
Tokyo’s Nikkei 225-share average ended up 114.13 points at 20,635.83.
In Frankfurt, the DAX 30-share average closed 0.09 point lower at 2,184.67, while London’s Financial Times 100-share average ended up 4.4 points at 3,171.9.
