November 29, 2004

Dollar Worries Send Dow to Close Down 46

NEW YORK - Stocks finished mixed in a volatile session Monday as investors worried that the continued fall of the U.S. dollar would spur inflation and hurt the overall economy. The concerns overshadowed a decent start to the holiday shopping season.

With the Federal Reserve meeting Dec. 14, many investors felt that the weakening dollar - which failed to gain much ground against other currencies Monday - would lead to substantially higher interest rates as the threat of inflation grows.

Wall Street also bid retail stocks lower despite improved sales for most retailers over the Thanksgiving weekend. A warning from Wal-Mart Stores Inc., which said its sales were lower than expected, led to selling across the sector. A strong showing in sales of electronics kept tech stocks slightly higher for the session.

"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.

The Dow Jones industrial average fell 46.33, or 0.44 percent, to 10,475.90. The Dow had been down more than 105 points earlier in the session.

Broader indexes were mixed. The Standard & Poor's 500 index was down 4.08, or 0.35 percent, at 1,178.57, and the Nasdaq composite index gained 4.90, or 0.23 percent, to 2,106.87.

Even stabilizing crude oil futures failed to assuage investors' concerns. A barrel of light crude settled at $49.76, up 32 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, said Joe Battipaglia, chief investment officer at Ryan Beck & Co.

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

The selloff on Wall Street also was prompted by a drop in the government bond market, where there were fears of foreign bondholders abandoning Treasury bills as the dollar continues to weaken.

Ten-year treasury notes fell 71.875 cents to $99.34375, with the yield rising from 4.23 percent to 4.33 percent. At its next meeting, the Fed 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 Tuesday and the Labor Department's jobs creation report 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 $2.17 to $53.15.

Other retailers fared better in holiday sales, but many remained under pressure due to Wal-Mart's report. Target Corp. slipped 31 cents to $51.90, J.C. Penney & Co. dropped 65 cents to $39.91, Sears Roebuck & Co. lost $1.88 to $52.42, and Kmart Holding Corp. fell $5.38 to $102.01.

Apple Computer Inc. surged $3.89, or 6.03 percent, to $68.44 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 78 cents to $95.50, while Sony gained 40 cents to $36.37.

Declining issues outnumbered advancers by nearly 5 to 4 on the New York Stock Exchange, where volume came to 1.79 billion shares, compared to 631 million in Friday's holiday-shortened session.

The Russell 2000 index of smaller companies was up 3.30, or 0.52 percent, at 634.46.

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.


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