Dollar Slumps, Reviving Worries

A bullish report on U.S. economic growth couldn’t help the sinking dollar Friday as the greenback fell broadly against other major currencies -- raising fresh worries about foreigners’ willingness to continue buying American stocks and bonds.

But Wall Street seemed to take those concerns in stride. Most major stock indexes were little changed, and Treasury bond yields declined. The Dow Jones industrial average eased 15.37 points, or 0.1%, to 11,367.14, after hitting a six-year high Thursday, but the broader Standard & Poor’s 500 index eked out a small gain.

Gold, which often competes with currencies when global investors are looking for a place to put their money, rocketed to a 25-year high of nearly $652 an ounce. Fears about the standoff between the West and Iran over its nuclear program helped to stoke gold, analysts said.

The dollar, which has been sliding for the last month, hit an 11-month low against the euro and a three-month low against the yen. It sank to a 28-year low against the Canadian dollar.

A falling U.S. dollar dents Americans’ purchasing power by making imports more expensive, although it also can make U.S. companies’ products cheaper abroad, boosting exports.

Some analysts said the greenback was likely to continue declining.

“I think that could be the overarching theme for the next six to nine months” in currency markets, said John McCarthy, director of foreign exchange trading at ING Financial Markets in New York.

The dollar’s trend is closely watched on Wall Street because of the nation’s unprecedented reliance on foreign capital to fund its growth. The U.S. current account deficit, the broadest measure of trade with the rest of the world, hit a record $805 billion last year.

The deficit means the nation is receiving more than $2 billion a day in foreign capital. If foreigners became unwilling to invest or lend that amount of money in the U.S., the country would be forced to fund its growth internally, which would require some combination of higher savings and lower consumption.

A weak dollar saps the value of foreigners’ U.S. investments, and can be a sign that they are selling dollar-denominated assets and taking their money elsewhere.

Analysts said that foreign selling was one factor putting pressure on the dollar Friday. They said global investors were reacting to expectations that the Federal Reserve soon may pause in raising short-term interest rates -- an idea that Fed Chairman Ben S. Bernanke appeared to endorse in comments before Congress on Thursday.

If the Fed holds interest rates steady, dollar-denominated bonds could become less appealing to foreigners compared with other countries’ securities. That could become a bigger issue, experts say, because the European Central Bank, the Bank of Japan and the Bank of Canada may continue to raise their own rates even if the Fed takes a breather, luring yield-hungry investors away from U.S. securities.

Joseph Carson, an economist at money manager Alliance-Bernstein in New York, said the risk to the dollar “has to do not with what we’re doing but with what others are doing,” meaning foreign central banks.

The dollar ended at 113.87 yen in New York on Friday, down from 114.08 on Thursday and 118.69 two weeks ago.

The euro jumped to $1.261, up from $1.253 on Thursday and $1.211 two weeks ago.

Americans traveling to Canada found the U.S. dollar buying about 1.117 Canadian dollars, down from 1.123 on Thursday and the closest to parity since 1978.

Some analysts say fears of a sustained plunge in the dollar are overblown. Even if the Fed raises its benchmark short-term rate one more time, to 5%, then stops, that rate will far exceed the European Central Bank’s rate of 2.5% and the near-zero rate that still prevails in Japan. Canada’s benchmark rate is 4%.

Lara Rhame, a currency strategist at Credit Suisse Holdings in New York, predicted that the dollar would be higher, not lower, six months from now, because she expected U.S. interest rates to remain above comparable rates overseas.

She said the dollar might be back to 120 yen in six months, and that the euro might fall to about $1.18 by then.

But there are other pressures on the dollar besides rising rates abroad. Carson noted that China, which holds most of its nearly $900 billion in foreign currency reserves in dollars, is expected to diversify those holdings by slowly shifting some of the money into other currencies.

What’s more, the U.S. and the six other major industrialized nations in the so-called Group of 7 last week called for emerging Asian nations to allow their currencies to appreciate against the dollar. That could help narrow the U.S. trade deficit.

A weaker dollar “is the mechanism by which global [trade] imbalances can be corrected,” ING’s McCarthy said.

For the stock market, the still-robust U.S. economy so far is trumping any concerns about the dollar’s trend, said Art Hogan, chief market strategist at brokerage Jefferies & Co. in Boston.

“I think investors are saying, ‘What are my options here?’,” and they’re still finding stocks the most attractive bet, Hogan said.

Rising stocks topped losers Friday by 3 to 2 on the New York Stock Exchange and by 6 to 5 on Nasdaq.

The S&P; 500 edged up 0.89 point, or 0.1%, to 1,310.61.

The Nasdaq composite index slumped 22.38 points, or 1%, to 2,322.57, but that was due largely to a plunge in Microsoft shares after the company’s disappointing earnings report late Thursday. The software giant’s shares sank $3.10, or 11%, to $24.15.

For the week the Dow rose 0.2%, while the S&P; 500 eased less than 0.1%. The Nasdaq index slid 0.9%.

In the bond market Friday, the 10-year Treasury note yield ended at 5.06%, down from 5.07% on Thursday but up from 5.01% a week ago.

In energy trading, oil prices resumed their climb, rising 91 cents to $71.88 a barrel in New York futures trading. But for the week oil was down 4.4%.

Near-term gold futures soared $18.50 to $651.80 an ounce, bringing the metal’s year-to-date gain to 26%.

“Some people see gold as an alternative to the dollar” and to other currencies, McCarthy said.

Also, because gold is priced in dollars worldwide, it gets cheaper in other currencies as they appreciate against the dollar, spurring more demand overseas.

Among gold mining stocks, Newmont Mining jumped $1.64 to $58.36, Glamis Gold soared $2.44 to $39.25 and Agnico Eagle surged $3.19 to $36.86.

Silver zoomed $1.04 to $13.51 an ounce. A new exchange-traded fund that buys silver began trading Friday, fueling fresh demand for the metal, analysts said.

With many world markets closed Monday for the May Day holiday, some of the moves in currency and commodity markets Friday may have been exaggerated as traders rushed to get into or out of positions before the three-day weekend.