FINANCIAL MARKETS : Stocks, Bonds Recover With Dollar’s Rebound
The dollar’s recovery Wednesday from historic lows brought buyers back to U.S. stocks and bonds, while gold reversed Tuesday’s big gains.
On Wall Street, the dollar’s rebound sent bond yields tumbling after five days of increases, and pushed the Dow industrial average up 16.60 points to 3,979.23.
Traders said testimony by Federal Reserve Board Chairman Alan Greenspan on Capitol Hill provided needed support for the beleaguered dollar, which had been in a virtual free fall.
“It seems like he was saying things investors wanted to hear,” said Bill Allyn, trader at brokerage Jefferies & Co.
The dollar’s plunge, triggered by a confluence of events here and abroad, had raised fears that the Fed would consider raising short-term interest rates again to defend the currency.
In his testimony, Greenspan did not specifically refer to the possibility of higher rates, though neither did he rule them out. He called the dollar’s latest decline “unwelcome and troublesome.”
Whether out of fear or relief, dollar traders pushed the currency higher Wednesday, lifting it from 90.05 Japanese yen to 91.33 yen in New York, and from 1.370 German marks to 1.394.
Traders also pointed to comments made in Germany by Bundesbank council member Hans-Juergen Krupp, who told a German magazine that another cut in the central bank’s key interest rates is “possible.” That could deflate some of the mark’s allure.
In addition, Bundesbank President Hans Tietmeyer on Wednesday called the dollar “undervalued.”
The U.S. bond market rallied forcefully as the dollar recovered. Yields fell on short-term and long-term issues, with the 30-year Treasury bond yield diving to 7.54% from Tuesday’s three-week high of 7.62%.
Meanwhile, stocks opened higher as the dollar firmed, backed off a little, then resumed climbing.
The Dow’s 16.60-point gain recovered nearly half of Tuesday’s 34.93-point fall. In the broad market, advancing issues outnumbered decliners by 11 to 10 on the Big Board in active trading.
Most major stock indexes closed higher, with the Nasdaq composite index of mostly smaller stocks adding 4.48 points to 795.81 after losing 6.44 points on Tuesday.
As stocks rose, gold fell back. Near-term gold futures, up $5.20 an ounce on Tuesday in reaction to currency pandemonium, slumped $4.50 to $379.60 in New York.
Analysts said they were impressed with U.S. stocks’ and bonds’ resilience, but warned that another dive in the dollar could shake markets again.
In Latin America, meanwhile, no recovery seemed imminent for sinking markets. Brazil’s Bovespa stock index tumbled 9.6%, while Argentina’s Merval index sank 3.3%. Also, Argentine government “Brady” bond prices sank to record lows of 36.25 cents on the dollar.
But in Asia and Europe, the dollar’s troubles didn’t automatically translate into renewed selloffs in markets. Tokyo’s Nikkei 225 stock index fell 333.97 points to 16,621.31. But Paris’ CAC index added 8.15 points to 1,756.76 and London’s FTSE-100 index rose 15.1 points to 2,992.10.
Among Wednesday’s U.S. market highlights:
* Oil stocks moved broadly higher on talk that international oil producers, who are paid in dollars, might cut production to buck up the real price of oil. Texaco jumped 1 1/8 to 65 3/8, Exxon added 3/4 to 64 3/4, Mobil surged 1 3/8 to 89 1/2, Chevron climbed 5/8 to 47 5/8 and Arco was up 7/8 to 111 7/8.
* Some technology stocks also helped pace the market. Microsoft soared 3 5/32 to a record 68 1/2 after Merrill Lynch reiterated its buy rating on the stock.
Other tech winners included Apple, up 1 1/4 to 39 9/16; Adobe Systems, up 1 1/2 to 36 3/4; Dell Computer, up 1 to 42 3/8; and Cirrus Logic, up 2 1/8 to 37 1/8.
* Some industrial issues rebounded, which traders said may have reflected a hunt for exporting companies that could benefit from a weak dollar. GE gained 5/8 to 53 1/4, Cincinnati Milacron added 1/2 to 20 5/8, Dover was up 5/8 to 59 3/4 and Ingersoll-Rand jumped 3/4 to 29 5/8.
Also, Scott Paper rose 1 1/4 to 81 3/8 on buyout rumors.
