Stocks Plunge, Dollar Soars as Bond Yield Hits New Low

The U.S. bond market claimed a new page in the history books Thursday when growing signs of Asia’s widening recession helped drive the yield on the benchmark 30-year bond to the lowest level ever.

But stocks tumbled on news of weak U.S. corporate earnings and the continuing Asian financial crisis, while the dollar surged to an eight-year high.

Depressed world oil prices fell further, even as key producers sought to convince markets that they have the stomach for additional output cuts.

The Dow Jones industrial average ended down 159.93 points, or 1.7%, at 8,811.77.

Broader indexes also plunged despite a strong bond market, where interest rates fell to an all-time low as the latest wave of panicky selling in Asia produced yet another flight to safety in U.S. Treasuries.

But the drop in borrowing costs, which should spur the domestic economy, was overshadowed by the currency market, where the dollar soared to its highest level against the Japanese yen since 1990.

The dollar surged after Treasury Secretary Robert E. Rubin, speaking before a Senate committee, appeared to rule out a U.S. role in supporting the Japanese currency.

Even before Rubin’s remarks, many Asian markets had fallen sharply for a second day after a meeting of officials representing the Group of Seven industrialized nations failed to produce any plan to bolster the yen.

A rising dollar compounds Asia’s troubles by making returns on Asian investments less attractive. It also hurts U.S. companies by making U.S. exports more expensive in Asia and making Asian imports cheaper in the United States.

That means profit margins may shrink because “you’ve got [U.S.] wages rising at 4.4% annual rates. Wages are 60 to 70% of a product’s total cost, and there would be no way to pass on that increase by raising prices,” said Henry Herrmann, chief investment officer at Waddell & Reed of Overland Park, Kan.

Those concerns now hold greater sway with investors than the recent signs of resilience in the U.S. economy. Notably, the Commerce Department reported Thursday that retail sales jumped 0.9% last month, the seventh consecutive increase.

The dollar rose to 144.35 Japanese yen, its highest since it hit 144.20 yen in September 1990. It ended at 143.79 yen, compared with 141.43 at Wednesday’s close.

Traders said the dollar’s strength was a key factor in attracting foreign investors to the U.S. bond market.

Long-term bond rates are closely tied to other interest rates, so consumers can expect lower mortgage and home-equity loan rates, as well as lower rates on savings, analysts said.

The benchmark 30-year U.S. Treasury bond rose, reducing the yield to a record low of 5.65% from 5.70% at Wednesday’s close. That’s the lowest for a 30-year bond since the government began regular sales of these debt securities in 1977.

The Dow now sits 400 points below the record close of 9,211.84 on May 13 but still holds a gain of 900 points, or more than 11%, for the year.

The Standard & Poor’s 500-stock index fell 17.70 points to 1,094.58, and the technology-heavy Nasdaq composite index fell 23.50 points to 1,749.75.

Declining issues outnumbered advancers by an 8-3 margin on the New York Stock Exchange, where composite volume totaled 715.12 million shares.

The NYSE composite index fell 8.87 points to 565.50, and the American Stock Exchange composite index fell 7.80 points to 699.05.

The Russell 2,000 index of smaller companies fell 6.73 points to 444.35.

Among Thursday’s highlights:

* Only one of the Dow’s 30 components rose on the day: Johnson & Johnson, gained 6 cents to $72.88. The Dow’s big decliners were American Express, down $3.63 to $104.06; United Technologies, down $2.38 to $84.88; Procter & Gamble, down $2.25 to $84.56; and General Motors, down $2.56 to $70.25.

* Gold stocks fell after Doug Cohen, an analyst at Morgan Stanley, Dean Witter & Co., cut his 1998 estimate for gold to $305 an ounce from $320 and reduced his 1999 forecast to $330 from $340. The European Central Bank said gold is likely to comprise no more than 15% of its reserves, or half the level analysts had anticipated. Gold futures slumped $6.40 an ounce to $288.70.

Barrick Gold fell 81 cents to $17.38, and Newmont Mining fell $1.94 to $22.88.

Overseas, stocks fell 4.6% in the Philippines, 2.8% in Thailand, 2.1% in Japan, 1.4% in Malaysia and 1.2% in Hong Kong.