FINANCIAL MARKETS : Dollar Falls on Rate Cut Fears; Dow Off 25.93
The dollar took a tumble Thursday, dropping nearly 3% against the German mark--its largest one-day loss in 2 1/2 years--on growing speculation that the Federal Reserve Board may cut interest rates.
Stocks also fell, pressured by the falling dollar and two weaker-than-expected economic reports.
The catalysts for the dollar’s slide were the two economic reports, which sent fears into the market that the economy is slowing faster than money traders had anticipated.
The Labor Department said initial unemployment claims grew a surprising 13,000 last week, and the National Assn. of Realtors reported that sales of previously owned homes fell 6.4%.
That data came a day after a Commerce Department’s report showing that orders for durable goods plunged in April, adding to a picture of widespread signs of weakness in the economy.
The economic evidence accruing in the past month may signal that the Fed will cut interest rates when its policy-making committee meets in July, analysts said. Lower rates make dollar-denominated holdings less attractive.
The dollar closed in New York at 1.398 German marks, down from 1.440 on Wednesday. It also fell to 84.81 Japanese yen, down 2.7% from 87.23. It was the largest drop against the yen since March.
The greenback also came under pressure as rumors circulated in the market that Mexico may default on its debt obligations. Those rumors apparently followed comments Wednesday by Sen. Alfonse D’Amato (R-N.Y.), who said Mexico’s “economy is in shambles” and that optimistic accounts of a recovery are misleading.
Also weighing the dollar down is the lingering trade dispute between the United States and Japan, analysts said.
The falling dollar, home resale figures and unemployment claims all contributed to the stock market’s retreat. The Dow Jones industrial average dropped 25.93 points to close at 4,412.23, breaking a four-day winning streak and eroding gains of more than 97 points made since last Thursday.
Declining issues outnumbered advancers by 1,180 to 1,056 on the New York Stock Exchange, with 343.46 million shares changing hands, down from 393.86 million on Wednesday.
Broad-market indexes finished lower. The NYSE’s composite index fell 0.04 point to 283.94. The Standard & Poor’s 500-stock index slipped 0.02 point to 528.59.
The Nasdaq composite index lost 0.66 point to close at 877.32, and the American Stock Exchange’s market value index eased 0.02 point to 528.59.
The bad economic news sparked a rally in the bond market, and stocks followed bonds higher at the opening bell. But bonds quickly backed off their highs, trading close to unchanged for most of the day and paving the way for a retreat in stocks, traders said.
By the end of the day, the yield on the Treasury’s main 30-year bond had fallen to 6.72% from 6.74% on Wednesday. Its price, which rises when yields decline, was up 7/32 point, or $2.19 per $1,000 in face value.
Among Thursday’s highlights:
* The market was led lower by cyclicals, including International Paper, off 1 3/4 to 78 3/8; Alcoa, down 1 1/4 to 46 7/8; Caterpillar, down 1 1/8 to 59 1/8, and United Technology, which fell 1 1/8 at 75 3/8.
* Consumer non-durable stocks, which tend to do well during times of economic downturn, rose. Procter & Gamble added 1 1/4 to 70 1/4, while Merck climbed 1 to 45 1/2.
Technology stocks, which have led the market higher for weeks, were mixed, as investors sold some names to book profits.
* Intel rose 1 1/4 to 117 1/2, after losing ground early in the session. IBM added 5/8 to 96 3/4. But Compaq fell 3/8 to 41 and Novell slid 2 at 20 5/8.
* Software company Legent shares soared 13 to 44 1/4 after Computer Associates, a much larger software maker, announced it will buy Legent for $1.8 billion. Computer Associates’ shares soared 5 7/8 to 71 1/2.
* Game software maker Maxis rose 4 to 20 in its first day of trading, and Uunet, a computer products maker, climbed 12 to 26 in its debut.
* NextGen, a chip maker, soared 11 1/2 to 26 1/2 from its $15 initial offering price.
* The drop in home sales hurt the shares of timber companies. Georgia-Pacific fell 1 1/2 to 78, Weyerhaeuser lost 3/8 to 43 7/8 and Champion International fell 1 1/4 to 46 1/8.
Overseas, Tokyo stocks were hit by profit taking and arbitrage unwinding, with the Nikkei 225-share average off 391.31 points at 15,579.44. London stocks closed slightly lower; the Frankfurt bourse was closed for a holiday.
