FINANCIAL MARKETS : Trade Hopes Boost Dollar; Markets Calm
The dollar rose broadly Monday, posting one of biggest single-day gains against the Japanese yen this month, on optimism for a trade deal that will help cut the nagging U.S. deficit with Japan.
Stocks, meanwhile, closed mixed ahead of today’s Federal Reserve Board meeting, while bond yields inched up. The Dow Jones industrial average gained 17.49 points to 3,849.24 in moderate trading.
The dollar surged nearly a full yen in Europe overnight, on news that Japanese Trade Minister Ryutaro Hashimoto would meet in Washington with top Clinton Administration officials, seeking to head off U.S. sanctions in advance of a Friday deadline.
A trade deal could end market fears that the United States would seek to devalue the dollar further, thereby raising prices on Japanese imports.
The U.S. currency also gained against the German mark on news that Germany’s liberal Free Democratic Party suffered a defeat in local elections.
The defeat for the FDP, which is a coalition partner to the ruling Christian Democratic Party, raised doubts about re-election prospects for Chancellor Helmut Kohl in nationwide elections next month.
In New York, the dollar closed at 98.80 yen, up from 97.75 Friday, and at 1.554 marks, up from 1.548.
But the dollar’s gains didn’t help the bond market. The 30-year U.S. Treasury bond yield closed at 7.79%, up from 7.78% on Friday and a 27-month high. Shorter-term yields were mostly flat, awaiting the Fed meeting today.
Economists are divided on whether the Fed will raise interest rates this week for the sixth time this year. Many Wall Streeters believe the central bank will wait for more conclusive evidence on the economy’s strength.
But last week, short-term bond yields surged on the expectation that the Fed will act.
In the stock market, the Dow’s gain Monday ended a four-session losing streak, but the broad market was mixed. Losers topped winners by 11 to 10 on the Big Board and by 15 to 12 on Nasdaq.
The Nasdaq composite of mostly smaller stocks eased 1.83 points to 755.63, lowest since August 25.
Some analysts believe stocks could rally in relief this week if the Fed holds rates steady. “Once that’s out of the way one way or another, I think there’s a good chance the market may have a little bit of a bounce here,” said Walter Revis, analyst at Principal Financial Securities.
Among Monday’s highlights:
* Semiconductor stocks plunged after a CS First Boston analyst lowered ratings on some of the companies, citing pricing pressures for dynamic random access memory chips. Texas Instruments tumbled 3 3/4 to 68 1/4, Micron Technology slumped 2 to 36, Intel lost 5/8 to 62 5/8 and Advanced Micro Devices fell 1/2 to 29 1/2.
* Another big loser was Mercantile Stores, which plummeted 16 3/8 to 38 3/4 after the retailer revealed that merger discussions were terminated with a “third party” it did not identify.
* On the plus side, many classic consumer stocks surged. They may gain if the Fed raises rates again, analysts say, because investors may seek out stocks that aren’t dependent on economic strength.
Among consumer issues, Philip Morris jumped 1 1/4 to 59 3/4, Coca-Cola gained 1 to 49 3/4, Gillette surged 1 1/2 to 71 3/4 and Colgate Palmolive leaped 2 to 57 7/8.
Overseas, London’s FTSE-100 index sank 28.4 points to 2,999.9 on interest-rate worries, while Frankfurt’s DAX index fell 20.45 points to 2,068.67. In Tokyo, the Nikkei index eased 19.31 points to 19,814.36.
In Mexico City, the Bolsa index lost 17.44 points to 2,840.08.
In commodities markets, a cold, dry winter in Brazil that has already hurt coffee is now hurting the orange crop. Orange juice prices soared to four-month highs on Brazilian drought concerns, with November futures up 4.4 cents to 99.35 cents a pound.
