Stocks, Bonds Rally as Dollar Slips More
U.S. stock and bond markets stabilized Monday even as the battered dollar fell further against other major currencies.
The action on Wall Street, after Friday’s dollar-related decline, suggested that warnings about a potential economic crisis stemming from currency swings aren’t resonating with many U.S. investors, analysts said.
Instead, some investors Monday appeared to be hunting for stocks of companies that could benefit from a weaker dollar -- and from continuing U.S. economic growth.
The Dow Jones industrial average gained 32.51 points, or 0.3%, to 10,489.42 after sliding nearly 116 points Friday.
The technology-dominated Nasdaq composite index rebounded 14.56 points, or 0.7%, to 2,085.19 after tumbling 33.65 points Friday.
A Merrill Lynch index of 27 industrial and commodity-related stocks rose to a record high, indicating optimism about the economy’s path.
U.S. share prices ended mostly higher despite another drop in the dollar. It lost more ground against the euro, the Canadian dollar, the British pound and the South Korean won, among others.
The dollar’s woes took center stage on world markets Friday, after Federal Reserve Chairman Alan Greenspan warned that foreign investors may lose their willingness to finance America’s huge trade and budget deficits.
Foreigners’ record purchases of U.S. Treasury bonds and other dollar-denominated securities in recent years have allowed the nation to enjoy low interest rates and a growing economy. But the day will come when those investors will either seek to pare their dollar holdings or demand higher interest rates to buy more bonds, the Fed chief said.
Some economists have cautioned in recent weeks that the dollar’s latest slide could trigger heavy selling of U.S. assets by foreigners, fueling a global economic crisis. A falling dollar means foreigners’ U.S. holdings are losing value.
Over the weekend, however, finance ministers and central bankers from the U.S., the European Union and other major economies -- the so-called Group of 20 -- met in Berlin and took no official stance on the dollar’s decline. That was a signal that the descent probably would continue, currency traders said Monday.
“The trend is still there,” said Karl Halligan, chief currency trader at CIC Bank in New York. “The G-20 was an irrelevant meeting” in terms of the dollar’s direction, he said.
On Wall Street, many market pros are taking the view that the economy will be strong even if the dollar isn’t, said Timothy Morris, a senior manager at Bessemer Trust Co. in New York.
“I think the stock market is settling into the recognition that the economy is in pretty good shape,” Morris said, noting the market’s surge since late October.
What’s more, a further drop in the dollar could bolster prospects of many U.S. industrial companies and other businesses that are big exporters, analysts said. A weaker dollar makes U.S. goods cheaper abroad while raising the cost of imports.
Industrial issues rallying on Monday included Cummins Engine, up $2.32 to $79.27; U.S. Steel, up $2.05 to $49; and defense contractor General Dynamics, up $1.31 to $107.75.
Alfred Kugel, senior investment strategist at Stein Roe Investment Counsel in Chicago, said veteran investors had heard concerns about the dollar’s gyrations come and go many times in the last 25 years, yet predicted crises had failed to materialize.
Like Morris, Kugel believes the U.S. economy is in good shape and is poised for growth in 2005. That is encouraging investors to buy stocks, he said.
Fed Chairman Greenspan reinforced economic growth expectations Friday by signaling that the central bank was on track to continue raising its key short-term interest rate, Kugel said.
Greenspan’s comments drove Treasury bond yields higher Friday. On Monday, however, long-term yields pulled back. The yield on the 10-year T-note, a benchmark for mortgage rates, dipped to 4.18% from 4.21% on Friday.
Among Monday’s market highlights:
* Rising stocks outnumbered losers by more than 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq in moderate trading.
* The euro rose from $1.301 on Friday to $1.304, tying the record high reached Wednesday. The dollar was worth $1.186 Canadian, down from $1.193 on Friday and the lowest in 12 years.
The dollar strengthened slightly against the yen, ending at 103.25 yen in New York, up from 103.08 on Friday. But Japan’s Nikkei-225 stock index slid 2.1% on export concerns.
* The technology sector got a lift from Apple Computer, which surged $6.18 to a four-year high of $61.35 after brokerage Piper Jaffray raised its 12-month target price for the shares from $52 to $100, citing sales of the company’s popular iPod music player.
Among other tech shares, IBM added 66 cents to $95.11, Motorola gained 51 cents to $18.45 and Adobe Systems jumped $1.64 to $59.46.
* Oil pulled back after rebounding Friday. Near-term crude futures in New York eased 25 cents to $48.64 a barrel. But many energy-related stocks gained ground, nonetheless.
* Near-term gold futures in New York rose $2 to $448.80 an ounce, a fresh 16-year high. Gold has rallied with the dollar’s fall.
