Dollar Plunges Against Yen; Stocks Advance

The dollar on Friday posted its biggest loss against the Japanese yen in more than 18 months, in a rout triggered by comments from Japan’s finance minister and Federal Reserve Board Chairman Alan Greenspan.

But stock and bond investors celebrated after Greenspan appeared to back away from favoring another rise in short-term interest rates. The Dow industrials added 32.91 points to 7,169.53, and the market overall was broadly higher.

In currency trading, however, the dollar plunged to a three-month low against the yen and a one-month low against the German mark after Japan warned that it might sell dollars to strengthen the yen in the near term.

The dollar traded as low as 119.10 yen before recovering a bit to close at 120.35 yen in New York, down 3.42 yen, or 2.8%, from Thursday. It also fell to 1.6865 marks from 1.7067 Thursday.

The dollar had surged in recent months, hitting a four-year high against the yen, bolstered by the strong U.S. economy and relatively high interest rates here versus abroad.

But the advance against the yen, in particular, has begun to worry the U.S. and Japanese governments, because of the risk that an ever-weaker yen might allow Japan’s trade surplus to explode again.

Japan’s Finance Minister, Hiroshi Mitsuzuka, issued the specific threat of intervention on Friday, and that was all many currency traders needed to hear.

On top of that, Greenspan’s comments late Thursday, in which he hinted strongly that the Fed may not feel compelled to raise interest rates at its May 20 meeting, allowed bond yields to decline Friday. Lower yields could encourage more foreign investors to leave the U.S. bond market, weakening the dollar further.

But Greenspan’s comments were exactly what many stock investors wanted to hear.

Stocks were broadly but modestly higher, with winners topping losers by 15 to 10 on the New York Stock Exchange and 23 to 16 on Nasdaq.

The Nasdaq composite index gained 4.22 points to 1,335.05 Friday and was up 2.3% for the week. The Dow rose 1.4% for the week, after hitting a record high of 7,225.32 on Tuesday.

In the bond market, the yield on the benchmark 30-year Treasury fell to 6.89% Friday from 6.93% Thursday. It was 6.88% a week ago.

Among Friday’s highlights:

* The Dow’s biggest gainers included many multinational companies that would benefit from a weaker dollar. Caterpillar shot up 2 3/8 to 96 5/8, Procter & Gamble gained 2 to 132 and Merck rose 1 1/2 to 90 1/4.

* Many financial issues gained on Greenspan’s ambiguous statements about rates. NationsBank climbed 1 to 60 1/4, First Union rose 1 1/2 to 85 5/8, BankAmerica rose 2 to 115 7/8 and Citicorp rose 2 to 117.

* Cephalon plunged 7 to 13 after a report that its drug for treating Lou Gehrig’s disease failed to win the backing of a Food and Drug Administration advisory panel.

* New Wall Street darling Premier Laser Systems, up 3 to 14, jumped for a third day after the FDA approved its novel laser dental drilling treatment.

Market Roundup, D3