In New York item "Dollar zig-zags along with stocks, ends mixed" in second paragraph, pls read ... against the yen .... instead of ... against the yen ... (fixes instrument code) and in 12th paragraph, read ... Bundesbank President Ernst Welteke ... instead of ... Bundesbank President Ernst Welted ... (fixing spelling of surname). A corrected version follows.
(Recasts, updates prices, market activity)
By Svea Herbst-Bayliss
NEW YORK, Sept 19 - Taking its cues from a zig-zagging stock market, the dollar ended mixed on Wednesday, first falling and then recovering as investors worried that an already weakened U.S. economy may soon tip into recession. During the day the dollar slumped to a low against the Swiss franc, lost ground against the euro and erased most gains made overnight against the yen. Then with only a few minutes left on the trading clock, the greenback flexed its muscle and pared some losses when traders watched the stock market find its footing on news that the Bush administration dispatched 100 military aircraft to the Middle East. They were expected to move toward bases in or near the Gulf region, officials said. "We are following the stock market here and the more weakness we see there, the weaker the dollar is going to get," said Grant Wilson, vice president and trader at Mellon Bank in Pittsburgh. Sell orders came in waves and largely reflected Wall Street's growing sense of gloom after companies warned of layoffs and governments reduced growth forecasts. Even this week's string of global interest rate cuts failed to lift investors' spirits. But at end of the day, the damage was not as bad as it had been earlier, when the Standard & Poor's 500 Index briefly sank below the psychologically key 1,000 level. Erasing its half a percentage point losses, the dollar closed up against the euro at 92.69 cents. It also closed up against the yen, at 117.57 yen even though it erased overnight gains put on when Japan rushed to its rescue for the second time this week. At the close, the broadest gauge of U.S. stocks, the S&P 500, was down 1.61 percent at 1,016.08 while the blue chip Dow Jones industrial average, which had been off 3.5 percent, closed down 1.62 percent at 8,759.13. The Nasdaq composite index, off 5.4 percent for a time in the afternoon, recovered to close down 1.76 percent at 1,527.69. Throughout the day dealers reported orderly selling but said the market was still on edge as many houses were still trading in temporary offices one week after being evacuated from the financial district when two hijacked planes leveled New York's World Trade Center towers, killing thousands. Stock trading resumed on Monday after being halted for four days and blue chips posted their biggest daily point drop ever. Investors across the world worried about the state of growth, heightened by fears that Washington will mount military strikes to retaliate against last week's attacks or that more attacks may follow. In Germany, Bundesbank President Ernst Welteke said the outlook for global growth had to be reassessed now and a new report from the Federal Reserve suggested that growth had already been sluggish before last week's attacks. While the stock market was the main driver, analysts also kept close watch on how Washington may react to the attacks. "Global security is still the No. 1 theme driving the dollar and that will not change," said Grieg Anderson, currency economist at Fleet Global Markets in Boston. Traditionally the Swiss franc is viewed as a safe haven for investors in times of crisis and this happened on Wednesday when the euro hit a record low against the Swiss currency. The dollar's fragile state was on show overnight when Japanese officials rushed into the markets and sold yen for dollars for the second time this week, trying to keep a lid on the yen's strength at a time when Japan is trying to breathe new life into its own economy. Dealers said the Bank of Japan seems intent on trying to protect the 117 yen level. In late trading the dollar hovered near those 117.55 yen after having raced as high as 118 yen after the intervention. Amid speculation of what could happen next, traders said they did not expect foreign governments to ask the United States to help protect their currencies from rising to far, too fast. "Any sort of intervention involving the United States would be a cause for celebration in certain circles and I don't think we want to give them that kind of satisfaction," Fleet's Anderson said.