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Dollar Rallies Against Yen; Stocks Rise

July 29, 1994|From Times Wire Services

The dollar soared above the psychologically important 100 level against the Japanese yen for the first time in a month on growing expectations of a breakthrough in trade negotiations between the United States and Japan.

Stocks, meanwhile, got a boost from falling bond yields, which benefited from the dollar's rally.

U.S. and Japanese negotiators were scheduled to meet today for talks, ahead of the July 31 deadline Washington set for deciding whether to take steps toward trade sanctions.

"There is a suspicion in the market that there will potentially be an agreement before the deadline," said Peter Gloyne, vice president and manager of institutional trading at First National Bank of Chicago.

A trade accord would help the dollar, which has suffered because of widespread belief that a cheaper U.S. currency would be the sole means of reducing the huge U.S.-Japan trade gap should other methods fail.

Currency dealers also attributed the dollar's new strength to technical factors in an otherwise thin market.

In New York, the dollar rose to 100.10 yen, up from 98.55 yen on Wednesday. It was the dollar's first close above the 100-yen mark since June 27.

The dollar also finished stronger against the German mark than it did Wednesday, closing at 1.591 marks, up from 1.574.

On Wall Street, the Dow Jones industrial average finished higher, although a strong rally faded near the end of the session as investors became nervous about today's release of gross domestic product data. The Dow closed up 10.36 points at 3,730.83, having pared a 21-point gain posted earlier in the session.

In the broader market, advancing issues edged out decliners by 1,073 to 1,003 on the New York Stock Exchange, with 246.56 million shares changing hands, down from 251.76 million on Wednesday.

"People are pretty much sitting on their hands waiting to see if the GDP number is at the blowout end of the range," said James Volk, head of equity trading at Jensen Securities.

Economists had been predicting a 3.8% increase in the nation's second-quarter GDP, but Bob Walberg, a stock analyst at MMS International in Chicago, said some now fear it could be more than 6%.

"People are afraid that if the numbers exceed expectations, that will lead Federal Reserve to tighten" interest rates, Walberg said. Investors fear higher rates could choke off the economic recovery and jeopardize corporate earnings for the third and fourth quarters.

Stocks dipped at the open after the Labor Department said new unemployment claims for last week fell 59,000. Most economists had expected a more modest decline of 7,000.

But that data, which showed that the economy is unexpectedly robust, did not faze the bond market, where the rallying greenback helped Treasurys recover after a weak start.

The 30-year bond yield finished the day at 7.55%, down from the previous session's 7.61%. Its price, which moves in the opposite direction, rose 9/16 point, or $5.63 per $1,000 in face value.

The dollar's strength was seen as positive for bonds because a stronger U.S. currency tends to help keep inflation pressures in check. In addition, foreign investors are more likely to buy dollar-denominated investments such as Treasury bonds in a rising-dollar environment.

Also lending a degree of support to the fixed-income market was a report by the Conference Board that help-wanted advertising fell in June, apparently an indication that employment was not as strong as indicated by the Labor Department report.

The advance in Treasury prices, in turn, set off a rush to buy bonds from speculators who had placed bets on a further decline in bond prices. These traders, called short sellers, had borrowed bonds early Thursday and then sold them immediately, hoping their value would decline.

Among the market highlights:

* Minnesota Mining & Manufacturing was up 1 1/8 at 52 1/2. The company had reported record second-quarter profits on Wednesday.

* General Motors record $1.9 billion second-quarter profits beat analysts' forecasts. Its shares rose 3/8 to 50 1/4. Ford Motor Co., which reported solid earnings Wednesday, gained 5/8 to 31. Chrysler edged up 1/4 to 47 3/8.

* Wm. Wrigley Jr. Co., which posted disappointing second quarter profits Wednesday, dropped 3 to 41.

* LDDS Communications gained 1/4 to 19 on a report that it was close to acquiring the Williams Cos. WilTel long-distance telephone business for $2.5 billion. Williams Cos., whose stock was up 1 5/8 to 32 7/8, declined comment on the report.

* Wellpoint Health Networks tumbled 5 1/4 to 25 1/4 after its second quarter results fell below analysts' forecasts.

* Biogen Inc. was off 1 1/8 to 43 5/8 after it surged 15 1/4 Wednesday on news of promising results in a trial of its drug for treating multiple sclerosis.

Overseas markets were mixed. Tokyo's 225-share Nikkei average closed up 110.62 points at 20,247.85, and London's Financial Times 100-share average gained 13.6 points to finish 3,095.9. In Frankfurt, the DAX average ended down 17.63 points at 2,122.81.

Mexico City's Bolsa index closed down 4.07 points at 2,429.15, pressured by a drop in Telefonos de Mexico.

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