FINANCIAL MARKETS : Stocks and Bonds Follow Dollar Down
The dollar fell sharply Monday on worries over trade talks with Japan. The currency pulled stock and bond prices down with it.
Oil, gold, silver and most other commodity prices rose amid fears of higher inflation.
In currency trading, the dollar fell on concerns that Washington was using the lower dollar as a negotiating lever in its trade talks with Tokyo.
The dollar dropped to 82.05 yen in New York, just above the low of 81.60 hit overnight in Tokyo. The dollar had closed at 83.33 in New York on Friday.
The greenback also fell to 1.3688 German marks, down sharply from 1.3910 marks on Friday.
Analysts said stock traders were worried that inflation could be fueled by the dollar’s continued slump and rising prices for crude oil and precious metals.
In the stock market, the Dow Jones industrial average fell 12.80 points to close at 4,195.38, surrendering an early gain of more than 25 points.
The yield on the key 30-year Treasury bond rose to 7.37% from 7.33% on Thursday. (Stock and bond markets were closed for Good Friday.)
The stock market has risen recently to all-time highs--the last record was set Thursday when the Dow closed at 4,208.18--on investors’ expectations that the economy is heading for a “soft landing”--subdued inflation and moderate growth.
The shrinking dollar has so far been mostly ignored by the stock market, but some analysts said further weakness in the currency will eventually lead to inflationary pressures.
“Everybody wants to see the so-called soft landing, and inflation would be one of those nasty little facts that would prevent one from taking place,” said James Salloway, a director at Argus Research Corp.
Top U.S. and Japanese negotiators met to try to resolve a longstanding dispute over trade in cars and car parts, which account for about two-thirds of the $60-billion American trade deficit with Japan.
Traders are concerned that Washington may be using the lower dollar--which makes U.S. products more competitive and hurts Japanese exporters--to pressure Tokyo into cutting a trade deal. And hopes of a breakthrough are fading, dealers said.
“They say they aren’t using the dollar as a trade tool, but it certainly looks like they are,” said Bruce Campbell, chief trader with First Fidelity Bank in Newark, N.J.
The sentiment is so pervasive that market participants shrugged off Treasury Secretary Robert E. Rubin’s comment Monday that the Clinton Administration is committed to a strong dollar.
In the broader stock market, declining issues led advancers 1,120 to 1,106 on active trading of more than 333 million shares on the New York Stock Exchange.
The Standard & Poor’s composite index of 500 stocks fell 3.10 points to 506.13. The Nasdaq index lost 1.82 points to 830.82.
Overseas, Japanese stocks ended with solid gains in quiet trading. In Tokyo, the Nikkei 225-share average added 256.26 points, or 1.60%, to close at 16,304.15.
Stock markets across most of Europe were closed due to the Easter holiday.
Among the stock market highlights:
* Chase Manhattan gained 5/8 to 42 5/8 after its first-quarter earnings beat analysts’ estimates despite weak trading revenues, which had been expected. Strength in Chase stock boosted other banking issues. Citicorp rose 1 1/8 to 47 3/8. First Interstate Bancorp rose 1/2 to 80 1/4 on a gain in earnings.
* Software giant Microsoft jumped 4 7/8 to 77 3/8 after reporting better-than-expected earnings late Thursday. Intel, however, lost 1 to 94 as the computer chip maker’s first-quarter results drew an unenthusiastic response from investors.
* Gold stocks rallied with bullion. Placer Dome ended up 1 1/2 to 24 5/8. Newmont Mining rose 2 1/8 to 43 3/4 and Homestake Mining added 1 to 18 1/4.
* Luxottica Group and U.S. Shoe said they reached agreement in principle for the Italian eye wear maker to buy U.S. Shoe for $28 a share. U.S. Shoe rose 1 to 27 1/2. Luxottica was unchanged at 34 7/8 in U.S. trading.
* Time Warner gained 1/4 to 36 5/8 as it agreed to sell control of its Six Flags theme park business.
* ThermoLase surged 9 3/4 to 23 as it received clearance from the Food and Drug Administration to market a laser hair-removal system.
Elsewhere, oil prices jumped after Iraq rejected a U.N. resolution that would have allowed it to sell some oil on the world market. May crude oil gained 58 cents to close at $19.73 a barrel on the New York Mercantile Exchange.
The likelihood of tighter oil supplies during the summer driving season--the peak gasoline consumption period--also drove prices up.
In precious metals trading, May silver soared 34.3 cents to $5.725 an ounce on New York’s Commodity Exchange.
June gold rose $4.10 to $396.50 an ounce.
