November 29, 2004

Stocks Drop on Fears of Falling Dollar

NEW YORK - Fears of a falling U.S. dollar pushed stocks lower Monday as investor concerns about rising inflation outweighed their satisfaction with a decent start to the holiday shopping season.

The dollar worries overshadowed a good but uninspiring showing by the nation's retailers. While most retailers had improved sales over the holiday weekend, Wal-Mart Stores Inc. warned that its sales were lower than expected.

"What we're seeing here is investors realizing that the falling dollar could prompt inflation, and that could prompt a much stronger Federal Reserve response," said Peter Cardillo, chief strategist, senior vice president and market analyst with S.W. Bach & Co. "Wal-Mart's warning is still weighing on retailers, and the bond market's response to the dollar is helping as an excuse to take money off the table."

At midday, the Dow Jones industrial average fell 93.55, or 0.9 percent, to 10,428.68.

Broader indexes were narrowly mixed. The Standard & Poor's 500 index was down 8.60, or 0.7 percent, at 1,174.05, and the Nasdaq composite index lost 7.49, or 0.4 percent, to 2,094.48.

Even stabilizing crude oil futures failed to assuage investors' concerns. A barrel of light crude was quoted at $49.50, up 6 cents, on the New York Mercantile Exchange.

Instead, Wall Street was focused on the dollar, prompted by Fed Chairman Alan Greenspan's warning earlier this month that foreign investors could reduce their U.S. bond holdings should the dollar remain weak. Greenspan blamed a spiraling trade deficit and continued federal budget deficits for international investors' reactions.

Some analysts, however, thought Greenspan's warning, instead of helping matters, prompted increased speculation in both currency and bond markets, with the dollar falling to record lows against the euro last week. That, in turn, spooked stock investors, Battipaglia said.

"His statement didn't help whatsoever," Battipaglia said.

Wall Street also was responding to a drop in the government bond market, where there were fears of a selloff by foreign bondholders as the dollar continues to weaken. The dollar did manage to rise slightly above its recent record lows against most currencies.

Ten-year treasury notes fell 65.625 cents to $99.40625, with the yield rising from 4.23 percent to 4.33 percent in late morning trading. The Fed will meet Dec. 14, and it is widely expected to raise the benchmark interest rate by a quarter percentage point to 2.25 percent.

Wal-Mart's sales suffered because the discount retail giant offered fewer discounts than many of its competitors, and investors were not pleased with the results. Wal-Mart tumbled $1.93 to $53.39.

Other retailers fared better in holiday sales, but many remained under pressure due to Wal-Mart's report. Target Corp. slipped 48 cents to $51.73, J.C. Penney & Co. dropped 90 cents to $39.66, Sears Roebuck & Co. lost $1.92 to $52.38, and Kmart Holding Corp. fell $5.90 to $101.49.

Apple Computer Inc. surged $3.13, or 4.85 percent, to $67.68 after Merrill Lynch analysts said holiday sales of its iPod music player will give the computer and electronics company a strong boost. Merrill Lynch raised its price target on Apple to $77 from $66 per share.

IBM Corp. and Sony Corp. have collaborated on a new semiconductor specifically designed for home entertainment products, according to The Wall Street Journal. The two companies are reportedly ready to announce a limited production run for the chip, the newspaper said. IBM rose 53 cents to $95.25, while Sony gained 49 cents to $36.46.

Declining issues outnumbered advancers by about 9 to 4 on the New York Stock Exchange, where volume came to 594.32 million shares, compared with 334.15 million at the same point on Friday.

The Russell 2000 index of smaller companies was down 2.74, or 0.4 percent, at 628.42.

Overseas, Japan's Nikkei stock average rose 1.33 percent. In afternoon trading, Britain's FTSE 100 was up 0.18 percent, Germany's DAX index fell 0.18 percent, and France's CAC-40 slipped 0.04 percent.


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