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Nikkei Rebounds, Dollar Plunges

October 5, 1990

TOKYO (AP) _ Congress’ failure to pass the proposed U.S. budget soured any hopes for a return of the bulls on the Tokyo Stock Market despite a sharp rebound today. The dollar, meanwhile, plunged against the yen.

The surge indicated that investors had digested the Finance Minstry’s market-propping measures announced Monday, and were less skittish about the Middle East crisis, analysts said.

The government’s steps included slightly shorter trading times for stock options and a measure to increase the collateral value of securities used in margin deposits, which went into effect today.

In the morning, trading showed leftover positive momentum from comments Wednesday by U.S. Federal Reserve Board Chairman Alan Greenspan that fueled expectations of lower interest rates.

The market also was cheered by hopes that interest rates had peaked said Hiroshi Arano, an analyst at Nippon Kangyo Kakumaru Securities.

But news of the U.S. budget’s failure hit the market in the early afternoon, depressing the day’s gains. ″Just at the time you think you are out of it, the bear market swats you upside the head again,″ said Darryl Whitten, a Prudential Bache Securities analyst.

The Nikkei Stock Average of 225 selected stocks rebounded 549.46 points, or 2.47 percent, to close at 22,827.65. It fell 571.20 points, or 2.56 percent, on Thursday.

Trading was moderate on the first section, with an estimated 450 million shares changing hands.

″Today’s market (rise) was mainly because the investors felt comfortable″ about the Finance Ministry’s measure, said Masaki Sumi, deputy manager of the international department at Sanyo Securities.

″But fundamentally, other than that you can’t find many positive factors,″ he said. ″So most institutional investors are sidelined. And a small amount of buying can push up prices.″

Traders said big losses have kept institutional investors out of the market. As of Thursday, the Nikkei average had lost 27.76 percent of its value before Aug. 2, when Iraq touched off the Persian Gulf crisis by invading Kuwait. The Nikkei average for over-the-counter stocks fell 43.58 percent between Aug. 1 and Oct. 1.

Negatives such as inflationary pressures, especially continued rises in the price of oil, are expected to keep interest rates high, Sumi said. ″Therefore, for the time being the market will be confined in a narrow range,″ between 20,000 and 23,000 to 24,000, Sumi said.

It might turn bullish again next week, but ″I think the market will collapse again,″ he said, because of strong selling pressure from large amounts of margin trading and the expected closure of many special investment trusts.

The usual bear market that chases a long bull session probably will last until well into 1991, despite the record bounce on Tuesday, after the Finance Ministry’s announcement, Whitten said.

On Tuesday, the market scored a 2,676.55-point surge, its biggest in history.

Next week’s market figures will depend on how the New York stock market responds to the budget’s failure and to U.S. September unemployment figures, due out today in Washington, he said.

The dollar, meanwhile, suffered from the stock market’s rise, the prospect of lower interest rates in the United States and from the poor economic fundamentals plaguing the U.S. economy.

Lower interest rates for the dollar would tend to curb demand by making returns on dollar-denominated investments less attractive compared to other currencies and investment vehicles.

The dollar closed at 133.72 yen, down 2.18 from Thursday’s close, after trading between 132.75 yen and 133.80 yen. The currency started trading at 133.60 yen, down 2.30 yen from Thursday’s close.

″I only see reasons to sell the dollar,″ said Gary Lee, chief foreign exchange trader for Citibank in Tokyo.

″There is more room to go down,″ Lee said, citing the narrow interest rate differential between Japan and the United States, the latter’s ailing economy, and the tendency during the last few years for the dollar to drop against the yen in November and December.

If war breaks out in the Middle East and the United States wins quickly, the dollar’s complexion would change. ″If the United States can show the world it is still very strong politically as well as militarily, in that case, I will be very bullish,″ he said.

In bond dealings, the yield of benchmark No. 119 10-year Japanese government bonds dropped to 8.110 percent by 3 p.m. from Thursday’s 8.235 percent close. Their price rose to 83.15 points from 82.63.

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