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Stocks Fly Higher; Dollar Keeps Falling

January 27, 1987

NEW YORK (AP) _ The stock market showed new life on Tuesday, running up sturdy gains to snap a two-session slump and resume a rally keyed partly by the steep decline of the dollar, which again tumbled in foreign exchange.

Separately, a U.S. Bureau of Labor Statistics report indicated wage and salary increases averaged 3.5 percent last year, down from 4.4 percent in 1985, as more workers got year-end bonuses instead of bigger pay raises.

On Wall Street, stocks advanced broadly as more investors returned to the market in the wake of Friday’s wild and woolly plunge.

The Dow Jones average of 30 industrial stocks rose 43.17 to a record high of 2,150.45, topping last Thursday’s record close of 2,145.67. In the broader market, other indexes showed gains and more than two stocks rose in price for every one that declined on the New York Stock Exchange.

Many investors shied away from the stock market on Monday, scared off by the unprecedented gyrations of Friday’s session, when a record 302 million shares changed hands and the Dow industrials at one point plummeted 110 points in the space of an hour.

But Tuesday the Wall Streeters returned and so did higher stock prices, especially for issues of industries benefiting from a weaker dollar. Shares of pharmaceuticals, paper manufacturers and other companies that gain much of their revenue from exports - which are made cheaper by a weaker dollar - showed price gains.

″There’s a great deal of underlying strength and passion in this market,″ said Theodore Halligan, an analyst for Piper Jaffray & Hopwood. ″People have pretty well digested the violence of (Friday’s session).″

Part of the underlying market strength comes from a weaker dollar, analysts have said. While many economists warn that the steep fall of the dollar raises the risk of high inflation, investors note that it also makes U.S. exports more competitive.

The dollar continued sliding Tuesday in foreign exchange, hitting its lowest level against the West German mark in the 1980s because of new indications the Reagan administration will not move soon to support the U.S. currency.

Treasury Secretary James A. Baker III said in a televised report that there were no plans to hold a meeting of the so-called ″Group of Five″ nations - the United States, Japan, West Germany, Britain and France - to discuss the dollar’s plunge. He also said the market would set an appropriate level for the dollar.

Those remarks triggered aggressive dollar selling by traders in speculation the currency will fall further.

A weaker dollar has been a key Reagan administration weapon in the fight to shrink the massive U.S. trade deficit, expected to be a record $170 billion for 1986.

The wage and salary report indicated school teachers had the biggest average pay gains, at 5.9 percent, followed by state and local government workers, at 5.4 percent.

Private industry workers’ pay raises averaged 3.2 percent last year, with raises for manufacturing workers outpacing those for employees in the fast- growing service industries.

Non-union workers won pay raises of 3.6 percent, topping the 2.1 percent raises for union members.

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