Dollar’s Rise Clips Dow; Yields Fall

A sharp rally in the dollar’s value helped push the blue-chip Dow Jones industrial average modestly lower on Tuesday, but the broad market advanced.

Meanwhile, bond yields fell back as the Treasury’s auction of five-year notes saw surprisingly strong demand--indicating that yields have surged to levels that are attracting new buyers.

On Wall Street the Dow index lost 33.96 points to 5,560.41, adding to the 88.51-point decline Monday that was triggered by rising bond yields.

Some blue-chip multinational stocks were sold as investors worried about the rebounding dollar’s effect on the companies’ overseas operations, traders said. A stronger dollar can depress foreign-generated profits and make U.S. exports more expensive overseas.

But the stock market overall seemed to take its cue from easing bond yields. Winners topped losers by 14 to 10 on the New York Stock Exchange and by 20 to 17 on Nasdaq.

The Russell 2,000 index of smaller stocks gained 1.72 points to 332.43, and even the battered Dow utility-stock index showed strength, rising 1.88 points to 209.89.

In the bond market yields pulled back across the board from the seven-month highs reached on Monday, in the wake of last Friday’s surprisingly strong March employment report.

Traders said the market was encouraged by strong bidding at the Treasury’s auction of $12 billion in five-year Treasury notes. The yield on the notes was 6.415%, below expectations, and the Treasury got $2.60 in bids for every $1 in notes offered, above the $2.17 bid figure at February’s auction.

“Yield levels are very attractive, and investors are realizing that they’re sitting on a lot of cash and should be buying,” said Patrick Retzer, who manages $300 million of bonds at Heartland Advisors in Milwaukee.

The auction’s success at least temporarily subdued the negative mentality in the bond market, Retzer said.

The yield on the bellwether 30-year T-bond eased to 6.83% from 6.87% on Monday.

But many analysts worry that yields may go higher in the short run, especially if reports on March wholesale inflation and retail inflation, due Thursday and Friday respectively, show any hint of greater-than-expected price increases in the economy.

“I’m not that bullish (on bonds) at this juncture,” said Matthew Alexy, chief market strategist at CS First Boston in New York. “There are still a lot of unknowns” when it comes to gauging the pace of economic growth and inflation, he said.

For currency traders, however, the U.S. economy’s continuing expansion has become a reason to bid the dollar higher. The dollar rose to a seven-month high against the German mark Tuesday and a 26-month high against the Japanese yen.

“Good news on the U.S. economy is in fact good news” for the dollar, said Randolph Donney, director of research at Pegasus Econometric Group.

The dollar ended at 108.30 yen in New York, up from 107.75 Monday, and at 1.498 marks, up from 1.482.

Among Tuesday’s highlights:

* The Dow was weighed down by losses in such dollar-sensitive multinationals as Boeing, off 7/8 to 82 1/8; Procter & Gamble, off 1 5/8 to 83; and Philip Morris, down 1 1/4 to 89 3/8.

* Many financial issues also were weak on interest-rate worries. Federal National Mortgage lost 1 7/8 to 31, NationsBank fell 1 1/4 to 79 3/8 and Merrill Lynch was off 3/8 to 58 1/8.

* On the plus side, investors snapped up energy-related stocks again. Unocal gained 3/4 to 34 1/8, Halliburton jumped 1 7/8 to 58 5/8 and Royal Dutch gained 1 7/8 to 146 5/8.

* Some tech issues also continued to rally, although after the market closed the semiconductor industry reported dismal March orders. Intel rose 1 1/4 to 61 7/8, Xylan jumped 1 3/4 to 70 1/2, Dell added 2 3/8 to 41 7/8 and Autodesk was up 1 3/8 to 39 3/8.

* Among companies reporting first-quarter earnings, hospital information systems firm HBO jumped 10 1/8 to 110 7/8 and International Paper gained 3/4 to 39 1/4.

Cummins Engine jumped 1 7/8 to 42 1/2 after giving an upbeat earnings assessment.

Overseas, Tokyo shares resumed their rally, with the Nikkei stock surging 1.5%.

In U.S. commodities trading, oil prices edged higher as traders nervously monitored Iraq’s talks with the U.N. in New York over limited oil sales by Baghdad.

Crude oil for May delivery rose 3 cents to $23.06 a barrel at the New York Mercantile Exchange.

In other commodity trading, corn eased after setting record highs.

There was news early Tuesday that China had approved the export of 1.5 million metric tons of corn to South Korea and Japan.

Analysts and government officials in Rio De Janeiro said high corn prices were encouraging exports by Brazil.

“Today was one of taking profits (on corn) and it was a little negative on talk China may export corn and talk Brazil may export corn,” said Paul Haugens, vice president for FIMAT Futures.

May corn rose to a high of $4.38 1/2 a bushel but ended 3/4 cent lower at $4.35 a bushel at the Chicago Board of Trade.

Meanwhile, gold pulled back sharply after rallying Monday. May gold futures fell $3.60 to $395.60 on the Commodity Exchange in New York.