Dollar Falls to 18-Month Low Against Yen

The dollar on Friday posted its biggest loss against the 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 had a little party after Greenspan appeared to back away from favoring another rise in short-term interest rates.

The U.S. currency sank to a three-month low against the yen and a one-month low against the mark after Greenspan hinted the Fed may be slow to raise interest rates, and as Japan warned that it might sell dollars for yen to defend its currency.

Friday is “shaping up as legendary for the dollar,” said Matthew Robertson, who runs an $800-million global bond fund for Neuberger & Berman. “Japan’s threat of intervention and the spin given to Greenspan’s comments got the dollar falling, and then it just snowballed out of control.”

Yet many--Robertson included--said Friday’s plunge probably won’t spell the end of the dollar’s two-year rally. Strong U.S. economic growth and high interest rates will keep attracting foreign investors, they said.

The dollar traded as low as 119.10 yen before recovering a bit to close at 120.35 yen, down 3.42 yen, or 2.8%, from its 123.77-yen close Thursday in New York, in its biggest plunge since Sept. 21, 1995. It fell to 1.6865 marks from 1.7067 marks, its biggest slump since July 16.

Meanwhile on Wall Street, stocks gyrated, ending modestly higher, amid conflicting interpretations of Greenspan’s remarks on inflation and interest rate policy.

The Dow Jones industrial average rose 32.91 points to close at 7,169.53 after swinging from an early 60-point gain to a midday deficit of 42 points. The blue-chip barometer gained 98.33 points on the week, but finished about 55 points shy of Tuesday’s record close of 7,225.32.

Broader stock indicators also traced the movements of the bond market, which started the day higher.

“I think people can read whatever it is they wanted to in his comments,” said Peter Canelo, chief investment strategist at Dean Witter. “He did allude to some good things happening, but there was really nothing new here.”

Indeed, it seemed Greenspan’s speech included at least one warning to offset every piece of good news.

He spent much of the speech defending the Fed’s March interest rate increase, pointing to the need for the central bank to act preemptively against inflation risks. But he also cast some doubt whether such a need existed now.

The Fed raised short-term interest rates a quarter point on March 25, the first increase in more than two years.

In the bond market, prices shot higher, with the yield of the benchmark 30-year Treasury moving down to 6.89% from 6.93% on Thursday.

With wholesale and retail prices, industrial production and housing starts reports all due next week and the Fed’s May 20 meeting drawing closer, analysts said the stock and bond markets would probably resume their choppy pattern.

On the New York Stock Exchange, advancing issues outnumbered decliners by an 8-to-5 margin in modest trading.

The Standard & Poor’s 500 list rose 4.52 points to close at 824.78, the NYSE composite index rose 2.33 points to 429.23 and the Nasdaq composite index rose 4.22 points to 1,335.05.

Among Friday’s highlights:

* The Dow’s biggest gainers were Caterpillar, up 2 3/8 to 96 5/8; Procter & Gamble, up 2 to 132; American Express, up 1 1/2 to 68 1/2; and Merck, up 1 1/2 to 90 1/4.

* Financial issues gained on Greenspan’s ambiguous statements about interest 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; Citicorp rose 2 to 117; and Chase Manhattan gained 1 7/8 to 97 3/4.

* 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. Research partner Chiron fell 7/8 to 19 1/8.

* 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.

* McDonald’s slid 1 1/8 to 53 1/8 after the world’s largest restaurant chain said a new low-priced menu doubled sales of its Big Mac, though only incremental profit gains were expected.

Overseas, Tokyo’s Nikkei stock average fell 1.3%, Frankfurt’s DAX index rose 0.3% and London’s FTSE-100 rose 1.1% to its sixth straight record high.

Market Roundup, D3