Markets rebound as dollar holds

NEW YORK — NEW YORK -- Bracing for another sharp decline after a failed central bank intervention in the currency market and political turmoil in Japan, the stock market unexpectedly rallied yesterday as the dollar ended the day nearly unchanged against leading currencies.

After falling nearly 140 points last week, the Dow Jones industrial average, the most closely watched barometer of stock performance in the United States, shot up 48.56 points, to 3,685.50.


But, the good news is misleading, some analysts warned, and, at any rate, short-lived, because the dollar is expected to begin falling again soon and with it, the stock market.

Nonetheless, all the leading stock indexes in the United States rose sharply, and the indexes of the leading foreign stock exchanges, with the exception of Japan, either stabilized or rose. Bond prices soared, commodities prices fell sharply, and the price of gold plummeted.


Caterpillar Inc., General Electric Co., General Motors Corp., Microsoft Corp., Ford Motor Co., Motorola Inc. and IBM -- component stocks in the Dow and the Standard & Poor's 500 index -- all rose more than $1 each.

"But this market is not as strong as it looks," said Michael Metz, chief investment strategist for Oppenheimer & Co. "Traders don't have the guts to buy the lift. They're just buying the big names."

Mr. Metz, a market bear, doubted that the rally would last the week.

The dollar, meanwhile, impressed financial markets yesterday by not collapsing. In late New York trading, it was quoted at 100.45 yen, down from 100.60 yen on Friday, but above a low of 99.50 yen in overnight trading.

"Maybe it's a stay of execution," said Victor M. Polce, manager of corporate foreign exchange at Commerzbank, the New York unit of a German bank.

"A lot of the short-term selling was over with last week."

But many of the traders in the estimated $1 trillion daily market for foreign exchange were still betting on a long-term dollar decline, he said.

The fate of the dollar is important because a weakening dollar FTC makes dollar-denominated assets such as stocks less attractive, particularly to foreigners.


For example, a French investor who bought the stocks in the Dow Jones industrial average would have a respectable return of 5.57 percent over the last 12 months. When converted to francs, however, the investor would have a loss of about 0.2 percent.

In the first 15 minutes of trading yesterday, the Dow fell more than 26 points, a probable spillover from Friday's steep decline, but it quickly recovered. The Dow rose, without any intervening falls, to close up nearly 49 points.

The broader S&P; 500 index showed a similar drop and then a steady rise to settle at 447.31, up 4.51 points. The smaller-company Nasdaq composite index dropped, then zigzagged somewhat, settling at 702.68, up 8.89 points.

Long-term interest rates fell and so did prices of commodities. The benchmark 30-year Treasury bond's yield fell to 7.45 percent from 7.52 percent.

The Commodity Research Bureau index of 21 commodities fell 2.21 points, to 227.77, led mainly by declines in futures contracts for sugar, pork bellies and corn.

But volume on the New York Stock Exchange was below normal, with 250.1 million shares changing hands. Traders may be hesitant in advance of the Federal Reserve's policy-making meeting on July 5 and 6.


This meeting of the Federal Open Market Committee will set monetary policy for the next six months. Moreover, stock sales or purchases this week will not be booked until July and will have no chance of affecting portfolio performance for the June 30 quarter.

Nonetheless, the early market rally in the United States helped lift exchanges in Europe. In London, the Financial Times-Stock Exchange index of 100 leading stocks rose 0.8 percent, and in Paris, the CAC-40 index rose a quarter of 1 percent.

The New York Stock Exchange composite index rose 1.90 points, to 246.45, with advancing stocks narrowly outnumbering declining stocks, 1,108 to 1,054. The American Stock Exchange market value index fell 0.85 point, to 425.45.

Of the 30 component stocks that make up the Dow industrials, 22 rose, led by Caterpillar, which rose $4, to $105.125. The most active stock, at 4.78 million shares, was Novell, the computer networking company, which rose 75 cents, to $15.25, after it completed the acquisition of the Wordperfect Corp.

Microsoft led the Nasdaq most-active list, up $2.375, to $51.875, followed by Oracle Systems, up $1.125, to $37.75. On the NYSE, cyclical issues gained. Ford Motor Co. rose $2, to $59.75, while Dow Chemical jumped $1.125, to $66.

Somatogen Inc. surged $2.75, to $9.50. Eli Lilly & Co. plans to produce Somatogen's recombinant DNA-produced blood substitute under a joint venture agreement. Lilly rose 75 cents, to $57.875.