Uncle Sam's surprise decision to help boost the Japanese yen sent stock prices soaring in U.S. markets Wednesday, as investors bet that the move would help preclude a further meltdown of Asia's economies.
As the dollar tumbled nearly 5% against the yen in foreign-exchange trading, the Dow Jones average of 30 industrial stocks closed with a 164.17-point gain, at 8,829.46, after being up more than 220 points earlier in the session.
That erased much of the 207-point loss the average incurred Monday, when investors' escalating fears about Japan and other Asian nations sent stocks into a tailspin. U.S.-traded securities of Asian companies, and shares of mutual funds that specialize in the region, dominated the list of biggest one-day gainers on the New York Stock Exchange.
In late foreign-exchange activity in New York, the dollar fetched 136.37 yen, compared with 143.47 yen the previous day, a 4.9% drop for the dollar. The greenback also fell against other major currencies after U.S. authorities moved into the market to sell dollars and buy yen--their first direct intervention in nearly three years.
But analysts cautioned that Japan and other Asian countries remain deeply troubled economically and that a one-day effort by the Clinton administration will not prevent those problems from continuing to disrupt the performance of many U.S. corporations--and to jolt their stocks--during the rest of the year.
"Asia is worse off now than only four or five months ago," said Rao Chalasani, chief investment strategist at Everen Securities Inc. in Chicago. "There's no question that we'll continue to see Asia's effects" on stocks, he said.
Still, traders agreed that a major psychological shift occurred Wednesday in all securities markets. Previously, Japan and the yen were seen as being in a near free fall--the yen has been trading at almost an eight-year low--and threatening to spark a new round of currency devaluations elsewhere in Asia, all of which could cut into U.S. economic growth.
Now there's evidence that the White House is willing to take aggressive steps to bolster Japan's fortunes. In confirming the U.S. intervention Wednesday, Treasury Secretary Robert Rubin signaled that the action might be repeated, saying, "We are prepared to continue to cooperate in exchange markets, as appropriate."
The U.S. effort "did help to restore a better balance to the currency markets, where the psychology was getting way out of whack," said Lawrence Kreicher, chief economist at Alliance Capital Management in New York.
"But we're disinclined to make too much out of what's happened in a couple of days," he added. "These are things that could be reversed very quickly."
Stock prices around the globe--including Asia--also had rallied Wednesday even before the United States intervened in foreign-exchange markets, amid rumors of intervention. Those gains ranged from 5.5% in Singapore to 8.5% in South Korea. The rallies extended into today with most Asian markets up several more percentage points by midday. Although Tokyo's Nikkei index closed little changed Wednesday, it was up almost 4.5% in today's trading.
Prices of U.S. government bonds fell, and the yield on the benchmark 30-year Treasury bond, which moves inversely to its price, climbed to 5.74% from 5.66% late Tuesday.
The stock market's rally was broad-based, as the bellwether Standard & Poor's 500-stock index gained 19.52 points, or 1.8%, to 1,107.11. Overall, more than two stocks rose for every one that fell on the Big Board.
The technology-heavy Nasdaq composite index climbed 23.28 points, or 1.3%, to 1,776.40, aided by a rally in Internet stocks following a report that AT&T; had unsuccessfully offered to buy America Online.
* The U.S. orchestrates an international effort to stabilize the yen. A1
* Washington's action signals a more forceful role for the U.S. A1
* Asian imports to the U.S. rose about 20% in May over last year. D2
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
The U.S. intervened in foreign exchange markets Wednesday in an attempt to bolster the faltering Japanese yen, the first currency intervention by American authorities since 1995. U.S. monetary officials are reluctant to take such actions in part because foreign exchange markets are so huge and can easily overwhelm whatever is done by central banks.
How the Latest Intervention worked
1. To shore up the Japanese yen, the U.S. Treasury Department asked the Federal Reserve to act as its agent to sell U.S. securities and use the proceeds to buy yen.
2. The foreign exchange trading desk of the Federal Reserve Bank of New York sold short-term bonds to raise $2 billion for the purchase of yen.
3. The Fed used the money to buy yen on foreign exchange markets.
Some Highlights of U.S. Intervention in the 1990s
* August 1992: The world's major central banks try to bolster the dollar but fail, causing the German mark and other currencies to rise in value.
* April 1994: The Fed and a number of foreign banks try to boost the dollar. The move works temporarily, but Fed officials are forced to intervene again later in the year.
* November 1994: Prompted by the dollar's decline to a post-World War II low against the yen, the Fed buys dollars. The greenback rises for a time, but slips again in February.
* August 1995: The dollar's value hits a six-month high after the central banks of U.S., Japan and Germany buy dollars. The action marks the sixth time the Fed has moved to increase the dollar's value in 1995.
Sources: Technical Data, Times staff and wire reports
Researched by JENNIFER OLDHAM / Los Angeles Times