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Dow Sets Record; Dollar at 4-Month Low

Markets: Blue chips surge to new highs as falling U.S. currency boosts multinational companies' prospects. IBM nears record high.

May 13, 1997|From Times Staff and Wire Reports

The rising dollar that bedeviled U.S. multinational stocks in March and April is suddenly crumbling, giving investors a fresh reason to buy blue-chip issues--which they did on Monday with a vengeance.

The Dow Jones industrial average shot up 123.22 points, or 1.7%, to a record 7,292.75, bringing its year-to-date gain to 13%. That is exactly half the 26% gain the index scored in calendar 1996.

The broad market was carried along with the blue chips, although smaller stocks lagged their larger brethren. The Nasdaq composite index of mostly smaller issues rose 9.14 points, or 0.7%, to 1,344.19. It is up just 4.1% so far this year, after tumbling in March and April.

As for Monday's burst of buying, "They just want the blue chips, want them badly," said Robert Streed, senior investment advisor at Northern Trust in Chicago.

The dollar provided a fundamental underpinning for the rally in big-name stocks: The slide in the U.S. currency versus the Japanese yen, the German mark and other key currencies since last week may help take some of the pressure off multinational companies' overseas operations, boosting competitiveness and profitability.

The dollar fell to 119.30 yen in New York on Monday, down 1.05 yen from Friday and the lowest since Jan. 24. It recently peaked at 127 yen. Against the German mark, the dollar edged up to 1.709 from 1.688 on Friday, but it remains below its recent peak of 1.73 marks.

Although the dollar has been the strongman of world currencies over the last year, leaders of the major industrialized nations have recently suggested that they would favor some weakness in the greenback.

Japanese officials, in particular, have attempted to "jawbone" currency traders into lowering the dollar's value over the last week, warning that Japan would not tolerate a continuing devaluation of the yen.

The United States, Japan and Germany all favored a stronger dollar last year, because it helped make Japanese and German companies' exports cheaper in the United States--a boost for the Japanese and German economies at a time when they were weak and the U.S. was strong.

But Japan's government has feared that a continuing devaluation of the yen could irreparably harm the Japanese financial system. And both Japanese and U.S. officials have worried that the currency advantage enjoyed by Japanese companies, such as auto makers, might become too damaging to U.S. competitors, especially the Big Three auto companies.

So Japanese officials began talking down the dollar last week. "Clearly the Japanese were trying to jawbone the dollar down," said Richard Koss, currency strategist at MFR Inc., a money management firm. "The question now is whether you can kick a pebble down the hill and keep it from becoming an avalanche."

In any case, U.S. investors, for now, can see only positive news in the dollar's weakness: A lower dollar automatically boosts overseas earnings of U.S. multinationals when repatriated home, and it can make U.S. exports cheaper.

With the American economy on solid footing, better foreign earnings could further boost blue-chip companies' earnings outlook, analysts note.

Hence the scramble for multinational stocks Monday, sending the Dow well above its previous record close of 7,225.32 reached May 6. The Standard & Poor's 500 and the New York Stock Exchange composite indexes also set new highs, as winners topped losers by 18 to 8 on the NYSE.

Some analysts, however, worry that a sustained downturn in the dollar could cause problems in the U.S. bond market: Because foreigners own nearly a third of U.S. Treasury securities, they could be moved to dump those holdings if a weak dollar began to devalue them.

So far, however, the bond market hasn't reacted badly to the dollar's pullback. Indeed, on Monday bonds were calm, with the bellwether 30-year Treasury bond ending unchanged at 6.89%.

Many analysts say the biggest reason for the return to bullishness in both stock and bond markets over the last two weeks is the growing belief that the Federal Reserve won't tighten credit again when it meets a week from today.

Among Monday's highlights:

* Multinationals leading the Dow higher included IBM, which jumped 6 to 173 1/2 and is nearing its all-time high of 175 7/8 set in 1987; Coca-Cola, up 1 1/8 to 66 1/2; General Electric, up 1 5/8 to 59 7/8; and Merck, up 2 3/8 to 92 5/8.

* Auto makers gained on the prospect that a weaker dollar will boost the cost of rival Japanese cars. Chrysler rose 5/8 to 31 7/8, GM gained 7/8 to 58 3/4 and Ford rose 3/8 to 37.

* Energy issues also were strong, led by Exxon, up 1 3/8 to 59 1/8; Chevron, up 1 3/8 to 72 3/4; and Halliburton, up 2 7/8 to 78 1/8.

* In the tech sector, Hewlett-Packard gained 2 3/4 to 56 7/8, Microsoft added 1 3/8 to 118 1/8 and Computer Sciences gained 1 3/8 to 73.

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