Dow Up, Dollar Down Amid Japan Friction

Market Overview

* Stocks rose Wednesday in a nervous session dominated by concerns about an escalating trade war with Japan and upcoming inflation data on the U.S. economy.

* The dollar traded lower as currency dealers awaited word of the next step in the growing trade friction between the United States and Japan.

* Long-term bond yields edged upward in listless trading as investors bided their time ahead of consumer inflation statistics due out today.

Stocks

The Dow Jones industrial average rose 22 points early in the session in a follow-through from Tuesday’s 24-point increase. But the rally began to fade in late morning amid concerns about trade tensions with Japan, analysts said.

The blue-chip indicator finished the day up 9 points at 3,937.27 on Big Board volume totaling 295.45 million shares. In the broader market, advancing issues outnumbered decliners by about 6 to 5 on the New York Stock Exchange.

“Trade problems, or the fight over trade with Japan, represent more of a threat to the bull market than rates themselves,� said James Solloway, director of research at Argus Research Corp.

Solloway said stock traders are concerned that the Clinton Administration’s increasingly tough stance with Japan could backfire on U.S. companies by pressuring the yen too high against the dollar.

A higher yen, while lowering prices of U.S.-made goods abroad and thus helping U.S. exports, could also chill foreign investors’ interest in buying dollar-denominated securities, including U.S. stocks, Solloway said.

Stocks also pulled back amid “a little bit of caution ahead of tomorrow’s numbers,� said James Schroeder, a stock analyst at MMS International.

Among other market highlights:

* Hewlett-Packard said its fiscal first-quarter earnings rose to $1.42 per share from $1.03 a year earlier, above many analysts’ expectations. Hewlett-Packard jumped 3 5/8 to 89 1/8. IBM was up 1/8 at 54 5/8 and Compaq advanced 1 1/4 to 93 3/4.

* Boeing rose 2 1/8 to 46 1/2 in active trading on the NYSE. The White House said Boeing and McDonnell Douglas Corp. will share a $6-billion commercial aircraft order from Saudia Airlines. McDonnell Douglas rose 1 7/8 to 118 7/8.

* Blockbuster Entertainment fell 3/4 to 24 1/2 and Paramount Communications dipped 1/8 at 77 7/8. Blockbuster and its partner, Viacom, won a five-month campaign to acquire Paramount for $10 billion in cash and securities. Viacom Class B closed unchanged at 28.

* Meanwhile, QVC Network, which lost its bid to acquire Paramount, added 1 1/4 to finish at 51 1/2.

* Benefiting for the second day from Clinton Administration efforts to get the Japanese to buy more U.S.-made cellular telephones, Motorola was up 3 1/8 at 104 1/2.

* A federal court jury ruled in favor of Johnson & Johnson in a patent infringement suit brought by rival U.S. Surgical. J&J; slipped 1/2 to 41 3/4, but U.S. Surgical tumbled 5 5/8 to 21 1/2.

* Atlantic Richfield lost 1 1/8 to 103 1/4 as analysts cut their first-quarter and full 1994 earnings estimates on Arco following a meeting with the company.

Meanwhile, in overseas trading, Tokyo stocks recovered slightly from the previous two days’ losses. The Nikkei-225 average closed at 19,052.11, up 77.51.

Elsewhere, Mexico City’s Bolsa index snapped a five-day losing streak and rose 19.64 points to 2,780.23. Frankfurt’s 30-share DAX average ended at 2,136.61, up 20.99 points, while in London, the Financial Times 100-share average gained 24.5 points to finish at 3,417.7.

Currency

Aggressive purchases of dollars by the Bank of Japan helped lift the dollar in overseas trading.

In the absence of new developments on the trade front, dealers said many are scrambling to buy back dollars sold in a hurry after the U.S.-Japan trade summit ended Friday without an agreement.

Dealers said the U.S.-Japan trade gap will drive the dollar’s direction against the yen. If the gap widens, dealers are likely to sell dollars on the idea that the White House might push for a stronger yen to help trim the deficit.

In the United States, the dollar moved lower in early trading as the market digested Washington’s attempts to clarify its dollar-yen policy, said Buddy Eichorn, senior vice president at Marine Midland Bank.

In New York, the dollar closed at 103.80 yen, down slightly from 103.85 yen Tuesday. Earlier, in Tokyo, the dollar closed at 103.15 yen, up 1.13.

Other Markets

Investors found little reason to buy or sell bonds despite a report showing a steep decline in the housing industry last month.

The Treasury’s main 30-year bond yield rose to 6.46% from 6.45% a day earlier, pushing prices up 3/32 point, or 94 cents per $1,000 in face value. Yield and price move in opposite directions.

The Commerce Department said housing starts plunged 17.6% in January because of inclement weather and the Northridge earthquake.

Investors were also reluctant to make major moves without seeing today’s inflation statistics for January, which are expected to give further clues into the Federal Reserve Board’s next move.

Meanwhile, in commodities trading, gold fell on the New York Comex to $383.60 an ounce, down 20 cents from Tuesday. Silver closed at $5.274 an ounce, up 1.9 cents.

Elsewhere, warmer weather helped drive oil futures lower on the New York Merc. Light, sweet crude for March delivery fell 13 cents to $13.93 a barrel.