Buying Spree Boosts Dollar to 6-Month High : Currency: But blue chips sag as U.S., Germany and Japan join forces to end greenback’s downward trend against yen.
The dollar jumped to its highest levels in nearly six months Tuesday as the United States, Germany and Japan joined forces in a surprise buying spree on world currency markets.
Dealers said they expect further advances as the dollar now looks to have decisively broken a five-year downward trend against the Japanese yen.
“Buy dollars and wear diamonds,” joked Scott Pardee, senior adviser at Japanese broker Yamaichi International in New York and a longtime backer of U.S. currency.
In New York, the dollar was at 96.94 yen, its highest level since Feb. 28 and up more than 3% from its 93.65 exchange rate Monday. After New York trading ended, the dollar added to its gains in Tokyo, rising above 99 yen before slipping back to 98.68 yen early today.
The stronger dollar means that Americans won’t have to pay as much for imported products. It also will make it cheaper for Americans to travel overseas.
But it will put a dent in the earnings of U.S. companies, which will find it harder to turn a profit on their exports. Wall Street stock prices sagged Wednesday, partly in response, although a late-session reversal in the bond market pulled stocks off the day’s lows.
Analysts are now looking for the dollar to rise to 100 yen.
“The trend has turned,” said David Coleman, chief economist at broker CIBC Wood Gundy in London. “Dollar-yen is going back up to 100.”
The Dow Jones industrial average closed 19.02 points lower at 4,640.84, up from the day’s low of 4,614. The blue-chip index rallied over 41 points Monday.
In the broader market, losers led gainers 1,180 to 1,035 on moderately heavy volume of 330 million shares on the New York Stock Exchange.
The Nasdaq composite index slipped from its record closing high set Monday, dropping 0.07 point to 1,012.37.
The dollar concern was especially reflected in the Dow index, which is made up of large multinationals. Coca-Cola Co. fell 7/8 to 65 1/2, McDonald’s Corp. dropped 1 1/8 to 37 3/4 and Merck & Co. gave back 7/8 to 50.
Leon Brand, global market strategist at NatWest Securities, said he did not expect the dollar’s rally to last long. Once the dollar stabilizes there could be renewed buying in shares of exporters, coupled with a resurgent interest in smaller, domestic-market oriented companies, he said.
“That should give us again a new high in the stock market,” he said.
Traders said sharper losses in stocks were averted after the bond market reversed ground late in the day.
The price of the Treasury’s main 30-year bond, down 1/4 point in earlier trading, ended up 3/4 point, or $7.50 per $1,000 in face value. Its yield, which moves inversely from price, fell to 6.89% from 6.95% late Monday. Among Tuesday’s highlights:
* Broadway Stores Inc. jumped 4 1/4 to 7 1/8 after Federated Department Stores Inc. said late Monday that it planned to buy the retailer in a deal valued at $1.6 billion. Federated fell 1 1/2 to 28.
* The initial public offering of AVX Corp. rose 5 3/8 from its starting price at 25 1/2. AVX is unit of Kyocera Corp. and makes passive electronics components.
* Home Depot Inc. said its second quarter gross profit margins fell and weather-related delays were slowing 1995 store expansion. It fell 3/4 to 42 1/2.
* MedPartners Inc. rose 4 1/4 to 25 5/8 after saying it was in a $360-million merger deal with Mullikin Medical Enterprises LP, a private multi-specialty physician group.
* Somatix Therapy Corp. rose 1 to 7 3/8 after Bristol-Myers Squibb Co. said it will invest $20-million dollars in the company for certain cancer gene therapy rights.
Among other indicators, the Standard & Poor’s composite index of 500 stocks fell 1.17 points to 558.57. The American Stock Exchange index rose 0.58 of a point to 524.52 and the NYSE Composite index of all listed common stocks fell 0.52 to 299.23. The average price per share fell 6 cents.
In foreign trading, Tokyo stocks soared on domestic investors’ buying in many incentive-backed issues and foreigners’ purchases of high-tech shares. The Nikkei average ended 536.15 points, or 3.17%, higher at 17,452.72, its highest close since 17,472.94 on Feb. 24.
German shares ended higher supported by firm Bund and DAX futures, the dollar’s strength and Wall Street’s strong finish Monday. The DAX index ended up 19.16 points at 2,227.61.
In Mexico City, the Bolsa recouped early losses and managed to end up 0.82 at 2,522.64. It hit a session low of 2,509.69 before bouncing back.
In London, stocks ended mixed to slightly higher as the summer holiday season kept many investors away. The FTSE-100 index finished 3.0 points higher at 3,444.4.
On New York’s Commodity Exchange, gold rose $1.20 to $385.30, ending off its highs after an early rally was capped by producer selling, traders said.
Silver ended slightly lower, after a rally to two-month highs stalled and speculative selling helped drive prices back down, traders said. September silver settled 0.7 cent lower at $5.345 an ounce.
Nymex gasoline closed lower as traders expected a rise in imports in the aftermath of Hurricane Erin. Late Tuesday, the American Petroleum Institute report confirmed a rise in gasoline, with supplies up 281,000 barrels during the week ended Aug. 11--more than some analysts expected.
September gasoline closed down 0.41 cent at 54.82 cents a gallon. September heating oil was off 0.03 cent at 48.74 cents a gallon, and September crude oil lost 1 cent to end at $17.47 a barrel.
Markets Roundup, D8
