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Fri, Nov 21, 2003 - Page 12 News List

Wall Street jittery as dollar falls

CURRENCY STORM As investors in New York worried about a looming trade war with China, the greenback plunged to a three-year low against the Japanese yen

REUTERS , NEW YORK

Wall Street investors had yet another reason for nail-biting this week as worries about a possible trade war slammed the dollar to a record low against the euro and a 3-year low against the yen.

Major US stock gauges weathered the currency storm on Wednesday, bouncing back after four straight days of declines, but market analysts said growing trade tensions and the dollar's tumble contributed to the sense of caution on Wall Street.

The Bush administration's decision on Tuesday to slap import quotas on Chinese textiles stoked fears that Washington may be adopting protectionist policies to feed domestic growth as next year's US elections approach.

Those fears sent the dollar sharply lower until traders stepped in to lock in profits on the European currency's steep climb. In addition, rumors Japan's central bank was buying dollars capped the yen's rise.

Wall Street's immediate worry is that foreign investors, faced with getting less bang for their buck in dollar-denominated securities, could reduce the heavy flow of money into US assets, which fund the massive US current account deficit.

"Foreign investors are concerned that, even if they have appreciation of the underlying asset, it's going to be negated by the decline in the US dollar when they convert back into their own currency," said Owen Fitzpatrick, head of the US equity group at Deutsche Bank Private Wealth Management.

Feeding those concerns was a report showing net foreign purchases of both US stocks and Treasury bonds fell in September.

A steep and protracted slide in the dollar would likely wreak havoc with US stocks, particularly given that the market's blazing rally this year has made investors anxious to lock in profits at the faintest whiff of bad news.

Despite declines in recent sessions, the Standard & Poor's 500 is still up about 18 percent year-to-date.

Longer term, however, a moderate softening in the dollar could actually benefit the market by making US goods more competitive overseas and fostering growth in the economy and corporate America's profits, analysts said.

Still, there may be bigger troubles brewing for the US stock market as recent trade spats with China and the EU heat to a boil.

Among those issues is what effect US trade policies, viewed by some nations as increasingly protectionist, might have on the US' economic rebound as well as its global image, a number of econoic analysts said.

Tariffs lift the price of imports, raising the specter of inflation.

"Many people right now are pointing ... to the trade issues and what type of impact that will have, and what type of rising anti-American sentiment will arise from the administration's decision so far to keep some tariffs in place," said Peter Gottlieb, president of Gottlieb Investment Man-agement Corp.

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