November 29, 2004

Dollar Worries Keep Wall Street on Edge

NEW YORK - Fears of a falling U.S. dollar kept stocks mixed in a volatile session Monday as investors balanced their concerns about rising inflation against 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 business was slower than expected. A strong showing in sales of electronics kept tech stocks slightly higher.

"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."

In late afternoon trading, the Dow Jones industrial average fell 11.01, or 0.1 percent, to 10,511.22. The Dow has been down as much as 105.15 earlier in the session.

Broader indexes were mixed. The Standard & Poor's 500 index was down 1.01, or 0.1 percent, at 1,181.64, and the Nasdaq composite index gained 6.49, or 0.3 percent, to 2,108.46.

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 afternoon 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.

Many investors held out hope for better economic news this week, with a reading of the nation's gross domestic product coming on Tuesday and an important job creation report coming on Friday.

"This is a huge week from an economic release standpoint, and we'll have a lot of datapoints to get through before we'll be able to see if this rally we've had can continue," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. "If we see enough positives, we could have reason for cheer on Friday."

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 $2.08 to $53.24.

Other retailers fared better in holiday sales, but many remained under pressure due to Wal-Mart's report. Target Corp. slipped 21 cents to $52, J.C. Penney & Co. dropped 45 cents to $40.11, Sears Roebuck & Co. lost $1.61 to $52.69, and Kmart Holding Corp. fell $4.20 to $103.19.

Apple Computer Inc. surged $3.92, or 6.07 percent, to $68.47 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 $1.12 to $95.84, while Sony gained 53 cents to $36.50.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume came to 1.06 billion shares, compared to 505.61 million at the early close of Friday's trading.

The Russell 2000 index of smaller companies was up 4.06, or 0.6 percent, at 635.22.

Overseas, Japan's Nikkei stock average rose 1.33 percent. In Europe, Britain's FTSE 100 closed up 0.18 percent, France's CAC-40 slipped 0.04 percent for the session, and Germany's DAX index fell 0.18 percent in late trading.


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