FINANCIAL MARKETS : Dow Up 1.35 to New High, While Dollar Gets Slammed

Wall Street closed mixed Thursday after Wednesday’s run to new highs, as a sudden plunge in the dollar caused some uneasiness.

The Dow Jones industrial average, off modestly for most of the session, spurted higher in the final hour to close with a 1.35-point gain at 3,987.52, a record high.

But the broad market was mixed, as losers outnumbered winners by 13 to 9 on the Big Board. The Standard & Poor’s 500 index joined the Dow in record territory, up 0.68 point to 485.22, but the Russell 2,000 index of smaller stocks fell 1.54 points to 255.93.

Traders said the market’s struggle to follow through on Wednesday’s rally--when the Dow leaped nearly 28 points and threatened the 4,000 mark--reflected a tumble in the dollar and renewed concerns about Mexico’s financial crisis.

The dollar plunged to its weakest level against the German mark in nearly four months and hit a 3 1/2-month low against the Japanese yen, in a selloff blamed in part on increasing belief that the U.S. economy is slowing.

Currency traders expect that a weaker U.S. economy would mean lower interest rates, which could leave dollar-denominated bonds less attractive than higher-yielding issues offering in other countries, particularly Europe.

In addition, the proposed U.S.-led bailout of Mexico has bearish overtones for the dollar because it could put more dollars in circulation, to prop up Mexico. “The feeling overseas is that Mexico’s (financial) problems now are our problems,” said Robert Brusca, economist at Nikko Securities.

In New York, the dollar fell to 1.489 German marks from 1.509 marks on Wednesday, and to 97.45 Japanese yen, down from 98.53.

The Canadian dollar also tumbled, after Moody’s Investors Service said it was reviewing its “Aaa” ratings on Canadian government debt to see if they should be lowered, given the country’s swelling debt load. The Canadian dollar fell to 70.70 U.S. cents, down from 71.30 cents Wednesday.

U.S. dollar weakness weighed on the bond market, some traders said. The yield on the 30-year Treasury bond inched up to 7.57% from Wednesday’s five-month low of 7.56%.

But shorter-term Treasury yields continued to slide, as expectations of an economic slowdown were boosted by news of a plunge in housing starts in January. The one-year T-bill yield dropped to 6.56% from 6.63% on Wednesday, and is down sharply from 6.85% a week ago.

Many Wall Street analysts believe that sliding interest rates will send stock prices higher in the near term, finally lifting the Dow index over the 4,000 mark. Traders noted that today’s so-called double witching of key stock option expirations could cause volatile, technically driven trading, and that that alone could send the Dow over 4,000.

Among Thursday’s highlights:

* Technology issues supported the market. Hewlett-Packard’s stellar quarterly earnings report sent its shares up 10 1/2 to 115 7/8 and lifted other tech stocks as well. Winners included Adobe Systems, up 2 to 34 1/2; Cadence Design, up 7/8 to 24 5/8; Motorola, up 2 1/2 to 64 1/4; Texas Instruments, up 1 3/4 to 80 1/4; and Pairgain Technologies, up 2 9/16 to 21.

* The Dow was boosted in part by Coca-Cola, which rose 1 1/8 to 54 after the company raised its quarterly dividend to 22 cents a share from 19.5 cents.

* On the downside, AT&T; lost 1 to 51 3/8 after saying it was cutting rates for non-business long-distance customers. Fears of a deeper price war sent Sprint down 7/8 to 29 7/8 and MCI Communications down 7/8 to 19 3/4.

* Among Southland issues, Pinkerton’s slumped 1 3/4 to 16 1/4 after the security services firm reported a fourth-quarter loss from one-time items, and said it faces labor shortages in some markets.

* Latin American issues traded in the U.S. were mixed. Telmex tracked a rebound in the Mexican market, rising 5/8 to 30 1/8 after falling as low as 28 1/8. But Grupo Sidek, which said it will default on certain bond payments, plunged 2 1/8 to 3 1/8.

Overseas, Tokyo’s 225-share Nikkei average ended down 210.41 points at 17,780.59, its lowest point in more than a year, hurt by the yen’s new strength. In Frankfurt, the DAX index fell 19.32 points to 2,115.72. London’s FTSE-100 index lost 23.8 points to 3,051.1.