FINANCIAL MARKETS : Dollar Slide Clips Stock, Bond Prices
Another steep fall in the dollar sent bond yields sharply higher Monday and clipped stock prices.
In commodities markets, oil prices slumped to their lowest level since early May on expectations of ballooning supplies.
The dollar’s action held sway over most other markets. The buck edged back toward its record low against the Japanese yen as dealers grew pessimistic about the outlook for progress in bogged-down U.S.-Japan trade talks.
In New York, the dollar fell to 97.83 Japanese yen, down from 98.65 on Friday and near its all-time New York low of 97.50 reached July 12.
The dollar also weakened against the German mark, falling to 1.527 from 1.539 on Friday.
Despite hopes that the Federal Reserve Board’s recent boost in short-term interest rates would bolster the dollar, it has continued to slide, reflecting in part a lack of confidence in the United States by foreign investors, experts say.
Analysts also said Monday that some currency traders were spooked by rumors that the German central bank has decided it is finished cutting interest rates and may in fact need to begin tightening credit soon as Europe’s economy revives.
In the U.S. Treasury bond market, the yield on the benchmark 30-year bond jumped to 7.55% from 7.48% on Friday. Shorter-term yields also rose.
Bonds are hurt as the dollar weakens because foreign investors are reluctant to buy U.S. securities, fearing that the falling dollar will continue to devalue U.S. assets.
Traders said stocks and bonds were in part victims of typically slow summer-Monday trading activity, but stocks held up better than bonds.
The Dow Jones industrial average eased just 3.89 points to 3,751.22 as 235.8 million shares changed hands.
In the broader market, declining issues outnumbered advances by about 4 to 3 on the NYSE.
Among the market highlights:
* Defense stocks were broadly lower on fears about new cutbacks in Pentagon spending. Boeing fell 7/8 to 44 1/8, Lockheed dropped 1 1/4 to 63 1/8, McDonnell-Douglas slumped 2 3/4 to 112 5/8, Northrop Grumman lost 3/4 to 42 1/4 and United Technologies gave up 3/4 to 60 3/4.
* Technology stocks, the market’s recent leaders, turned mixed. Novell slumped 1 1/8 to 14 after the computer networker warned that quarterly earnings will be below expectations. Other losers included Cabletron Systems, down 2 1/2 to 102; Dial Page, down 1 1/2 to 25 1/4, and IBM, off 3/8 to 67 3/4.
But Digital Equipment gained 5/8 to 23 1/8, Compaq rose 1 to 37 5/8, Applied Materials jumped 1 1/2 to 51 3/4 and Cypress Semiconductor added 1/2 to 19 3/4.
* On the upside, some classic growth stocks continued to advance. Quaker Oats jumped 2 1/8 to 84, Gillette leaped 1 7/8 to 71 7/8 and Procter & Gamble gained 5/8 to 56 3/4.
* Mexican stocks traded in the United States followed their home market higher as investors celebrated the apparent election of the ruling party’s presidential candidate Sunday. On the NYSE, Telmex gained 1 to 66 1/2, Empresas ICA surged 1 3/8 to 31 3/8 and Coca-Cola Femsa leaped 1 1/2 to 34 1/2.
The Mexican peso also strengthened against the dollar. It cost 3.338 pesos to buy a dollar in New York on Monday, compared to 3.359 on Friday.
In other foreign markets, Tokyo’s 225-share Nikkei index fell 118.12 points to 20,394.58, continuing its recent selloff. In Frankfurt, the DAX index slid 25.78 points to 2,123.79, while London’s FTSE-100 index lost 20.1 points to 3,171.3.
In U.S. commodities trading, September crude oil futures in New York tumbled 71 cents to $16.87 a barrel, the lowest settlement for a near-term contract since May 4.
Traders said the perception is growing that crude supplies will be plentiful in the next couple of months, helped by higher production from the North Sea. Also, traders are losing conviction that Nigeria’s current oil workers strike will last.