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Dollar Plunges to Record Lows : Tokyo, Bonn Stances Feed Uncertainty

December 01, 1987|TOM REDBURN | Times Staff Writer

WASHINGTON — The U.S. dollar, taking yet another beating, plummeted in worldwide trading Monday to record lows against the Japanese yen and West German mark as economic policy-makers in Germany and Japan sent disappointing signals about what steps they will take to help calm fresh signs of nervousness in financial markets.

"There seems to be a kind of nameless dread out there," said Jerry Jordan, chief economist at First Interstate Bank in Los Angeles. "I don't read it as a specific fear so much as a reflection of uncertainty about where we're headed. The sense is that nobody is in charge."

Government officials in Tokyo said that they had no fresh plans to stimulate the Japanese economy, and reports from Bonn suggested that the German government's plans for further economic expansion fall short of market expectations.

Investors Not Reassured

And President Reagan apparently failed to reassure investors when he called the recently concluded $76-billion budget deficit accord with Congress "a good first step" that is "paving the way for strong, robust economic growth through 1988 and beyond."

Instead, despite indications that the stock market crash in October has had only a minor impact so far on a robust U.S. economy, global investors expressed their strong disenchantment with recent developments and their anxiety over the possibility of new economic traumas.

The price of gold, a traditional haven at times of uncertainty, rose sharply in London, by $14.10 to $492.50 an ounce--the highest level since February, 1983--before slipping modestly in later New York trading to $490.25.

The dollar was lower against all major currencies except the Canadian dollar in late New York trading. It hit 1.638 German marks, down from 1.654 late Friday, and fell to 132.225 Japanese yen versus 133.55 late Friday. And the British pound reached $1.8275, up from $1.8105.

Wall Street investors returning from the long Thanksgiving holiday reacted by sending the stock market plunging in very heavy trading and retreating to the comparative safety of government securities, where interest rates fell.

Stock Index Plunges

On the New York Stock Exchange, the Dow Jones industrial average fell 76.93 points to 1,833.55--its eighth-worst point drop in history. In the bond market, short-term interest rates fell considerably more than longer-term yields as investors searched for a safe harbor from the financial storms.

The financial market weakness began in Tokyo with a sharp plunge in the dollar. Analysts said investors were disappointed that U.S. Treasury Secretary James A. Baker III appeared to be in no rush to join with the six other leading industrial democracies in convening an international meeting to help stabilize currency rates.

"Markets worldwide are looking to the U.S. Treasury for some guidance, and the only signal they are getting from Secretary Baker is that he is not all that upset by the dollar drifting down," said Ira Kaminow, chief economist at the Government Research Corp., a private consulting firm here. "The Administration doesn't seem to be in any hurry to help out."

Reagan, in a White House speech to business leaders, did not mention the latest financial market declines, which some analysts blamed on disappointment over the relatively meager results from nearly a month of intense negotiations between Administration leaders and congressional leaders on the outlines of a deficit reduction package.

He called the budget package an "all or nothing" deal, vowed to oppose tax increases that might harm the economy and promised not to accept the higher taxes called for in the accord unless they are accompanied by spending reductions.

Reagan singled out Germany, which the Administration had criticized in October for failing to reduce interest rates, for its more recent efforts to stimulate economic growth.

"Last week, the central banks of West Germany, the Netherlands, Belgium and France did lower their (interest) rates," Reagan said. "From the Germans in particular, this was a welcome step toward economic policies that, like our own, stimulate growth."

Later, White House officials sought to play down the bad day on Wall Street, expressing skepticism that discontent with the deficit reduction agreement was behind the latest wave of financial instability.

"The agreement's been reached for over a week and a half now," spokesman Marlin Fitzwater said. "It certainly has been calculated and considered and cranked into the thinking of the markets from almost every perspective. Whether that is a factor at this point in the market sequence, I don't know that we can say."

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