Dow Loses 45 as Dollar Tumbles; Yields Decline
Blue-chip stocks fell Tuesday after five straight sessions of gains, but bonds rose on expectations for slower U.S. economic growth.
The dollar plummeted more than 2 Japanese yen--its biggest loss since the U.S. and Japan sold dollars two weeks ago--on signs Japan is making progress to mend its ailing banking industry.
Traders also bought yen after the policy chief of Japan’s ruling Liberal Democratic Party said he is considering a permanent tax cut to spur economic growth. The government is expected to announce details of its plan Thursday.
“People have been clamoring for a permanent tax cut and a deal to bail out the banking system,” said Mark Turner, chief investment officer at Schooner Asset Management Co. in Boston. “It would appear Japan is going to deliver. It’s only natural people will review their bearishness on the yen.”
The dollar fell for a second day, dropping as low as 137.83 yen. It landed at 139.16 in late New York trading, down from 141.69 on Monday. The dollar could fall to 130 yen in two weeks, Turner predicted.
The Dow Jones industrial average fell 45.34 points to 8,952.02, a decline of 0.5%. But in the broader market, advancing issues led declines by a 4-3 margin on heavy New York Stock Exchange volume of 752 million shares.
“We ended the quarter on a mixed note,” said Larry Wachtel, a market analyst at Prudential Securities.
In addition to profit-taking, the Dow was pulled lower by a sharp drop in Walt Disney shares after several analysts cut earnings estimates for the giant entertainment company because of lackluster movie results and slowing product sales in Asia.
Disney plunged $8.13 to close at $105.06; the drop accounted for about two-thirds of the Dow’s losses, analysts said.
Traders had braced for late-session volatility as money managers sought to move money into stronger stocks to improve their portfolios’ quarterly performance.
But a drop was almost inevitable, analysts said, after the Dow had jumped 233 points the last five sessions.
“We really bounced off the recent bottom, and we have some backing and filling to do,” said Dan Baker, co-director of institutional trading at D.A. Davidson & Co.
Baker cited the dollar’s drop against the yen as expectations mounted that Japan was taking serious steps to deal with bad loans plaguing its banks.
The Nasdaq composite index rose 3.66 points to 1,894.74, boosted by further gains in the Internet sector.
The Standard & Poor’s index of 500 stocks fell 4.65 points to 1,133.84, after hitting two straight records.
However, the Russell 2,000 index of smaller stocks added 3.56 points to close at 457.39.
The 30-year Treasury bond yield fell to 5.62% from 5.64% on Monday.
Investors digested early news that a U.S. F-16 warplane had fired at an Iraqi anti-aircraft site after Iraqi radar locked onto a British plane that was part of a routine mission over Iraq’s no-fly zone.
Apart from a boost to crude prices and some oil stocks, the incident had little effect on the broader stock market.
Among Tuesday’s highlights:
* The Dow would have nearly broken even on the day if not for Disney and Johnson & Johnson, which fell $3 to close at $74 on news of an FDA warning that its heartburn medication Propulsid may cause serious heart problems.
Overseas, Tokyo’s Nikkei stock average rose 3.0%, Frankfurt’s DAX index fell 0.3% and London’s FTSE-100 fell 0.9%.
Market Roundup, D9