FINANCIAL MARKETS : Dollar Gains Ground on Yen; Bond Yields Hit 2-Year High
The dollar rose Monday against leading currencies, briefly hitting the important psychological level of 100 Japanese yen for the first time in a month in the aftermath of a weekend trade accord between the United States and Japan.
At the same time, Treasury bond yields rose to two-year highs and stocks closed mixed on word of an unexpected surge in factory activity and higher prices for raw materials, news that fanned investors’ inflation fears.
“The trade deal was considered bullish for the dollar because it calmed the market’s fears that there would be total breakdown of the talks,” said David Durst, vice president at Bear Stearns & Co.
However, enthusiasm over the deal wore off early in the day, and the dollar ended with only moderate gains.
The dollar closed in New York at 99.58 Japanese yen, up from Friday’s 99.15 yen.
Also blunting the dollar’s advance beyond the key 100-yen level, market participants said, was heavy selling by Japanese manufacturing firms, which hold abundant stocks of the U.S. currency generated by their exports.
The dollar also closed at 1.554 German marks, up from 1.552.
In the bond market, the yield on the bellwether 30-year bond pushed up to 7.85%, the highest since June, 1992, and up from 7.81% on Friday. The long bond’s price, which falls when rates rise, declined 7/16 point, or $4.38 per $1,000 in face value.
Meanwhile on Wall Street, blue-chip issues managed a slight recovery late in the session amid some optimism about third-quarter corporate earnings. At the close, the Dow Jones industrial average rose 3.70 points to 3,846.89. But declining issues outnumbered advances by about 8 to 5 on the New York Stock Exchange.
Bond and stock prices fell from the early going after the National Assn. of Purchasing Management reported that its index of manufacturing growth rose to a six-year high of 58.2% in September from 56.2% a month earlier. An index reading above 50% indicates an expansion of activity at the nation’s factories.
The association’s price index, based on a survey of the prices manufacturers paid for materials, rose to 77.1%, the highest level since August, 1988, from 74.5%.
Both indexes ignited inflation fears in the market for fixed-interest securities, where traders and investors worry that their holdings will be eroded by rising prices in an expanding economy.
Higher commodities prices also reinforced the sense that inflation may be a problem as increases in precious metals prices lifted the Commodity Research Bureau’s index of 21 commodity futures prices more than a point to 231.04.
Among the market highlights:
* Advanced Micro Devices fell 3 1/4 to 26 1/2 after the company said fourth-quarter profit could be hurt by falling chip prices and the cost of starting up two new factories.
Micron Technology fell 2 1/8 to 32 3/8 on concern at the prospect of falling prices for its four-megabit DRAM memory chips. Texas Instruments dropped 1 7/8 to 66 1/8 and Intel fell 1 1/4 to 60 1/4.
* CareNetwork rose 13 1/8 to 24 after Humana said it would buy the company in a cash transaction valued at $123 million. Humana lost 1/2 to 23 1/8 in NYSE trading.
* Merck rose 7/8 to 36 1/2, Schering-Plough gained 1 to 72 and Warner-Lambert added 1 to 81 1/4.
* Database company Information American gained 1 7/8 to 5 3/4 on news that it will be acquired by West Publishing, a private company, for $6 a share.
Stocks were mixed in overseas trading. London’s Financial Times 100-share average fell 42.8 points to 2,983.5, while Tokyo’s 225-share Nikkei average gained 86.22 points to end at 19,650.03. The German bourse was closed for the German Unity Day Holiday and was to reopen today.
Market Roundup, D8
Interest Rates
30-year T-Bond: 7.85%
1-year T-Bill: 6.01%
