18 October 2002, 15:15  Dollar Gains to Four-Month High vs Yen as U.S. Profits Rebound

London, Oct. 18 (Bloomberg) -- The dollar rose to a four- month high against the yen as confidence about U.S. company profits increased, boosting stocks and the currency to buy them. ``Rising optimism about earnings is helping the dollar,'' said John Parker, who helps oversee 1.7 billion British pounds ($2.6 billion) at Pavilion Asset Management. The outlook for stocks and the U.S. economy ``is looking a bit better now. People are just worried instead of desperate.''
International Business Machines Corp. and Eastman Kodak Co. were among U.S. companies to report this week that third-quarter profits beat analysts' forecasts. Almost two-thirds of the companies in the Standard & Poor's 500 Index that have reported quarterly earnings have topped estimates. The U.S. currency climbed to 125.24 yen at 10:55 a.m. in London, from 124.83 late yesterday. It earlier rose to 125.49, the highest level since June 13. The dollar was little changed at 97.25 U.S. cents per euro, compared with 97.09.
Microsoft Corp. yesterday said first-quarter net income more than doubled, increasing optimism stock indexes will rise for the sixth day in seven. Stock futures were little changed. With so many ``companies beating Wall Street estimates, it's little wonder the dollar is stronger,'' said Michael Derks, a strategist at Commonwealth Bank of Australia in London. The currency could strengthen to 95 cents per euro and 127 yen in coming days because ``Europe and Japan have their own problems.''
Company Earnings
The Dow Jones Industrial Average has rallied 14 percent since Oct. 9. Almost a third of S&P 500 companies have reported third- quarter results; 63 percent beat forecasts, 28 percent matched and 9 percent fell short, according to Thomson First Call.
``We can have a rally that lasts maybe even into year-end,'' said Barton Biggs, Morgan Stanley's chief global strategist. ``Fallen angels'' such as Cisco Systems Inc. and Intel Corp. may be among the biggest gainers, he said.
Biggs said gains may lift the S&P 500 to as high as 1100, or 28 percent above yesterday's close of 879.2.
Advances in the dollar may be tempered, traders said, after economic reports yesterday showed U.S. factory activity has stagnated and an index of manufacturing in the Philadelphia area was weaker than economists expected. ``Some of the data suggested we can't be too optimistic about the U.S. economy, and that will probably snap the dollar's rise,'' said Minoru Shioiri, a senior currency trader at Mitsubishi Securities Co. in Tokyo.
Six-Year Slide
The yen also weakened because the Japanese government delayed announcing details of how it will turn around a four-year decline in consumer prices and make it easier for banks to write off trillions of yen in loans that aren't being repaid, analysts said. Japanese Prime Minister Junichiro Koizumi, speaking to Parliament, repeated promises to cut taxes, speed write-offs of some of the $418 billion of bad loans and soften the pain with measures to help small companies.
``We are still waiting to see what kind of measures the government will unveil,'' said Motoshi Imura, senior manager of foreign exchange at the Bank of Tokyo Mitsubishi in Japan's capital. In the meantime, ``we can't buy the yen.''
Hopes for progress on cleaning up bad loans were raised after the appointment of a new chief banking regulator, Heizo Takenaka, last month. A six-year slide in bank lending has starved the economy of fresh credit it needs to grow. The government has said it may use public money to bail out banks and increase spending to keep the economy from falling back into recession.
``There have been some encouraging signs but for any progress to be made, (the banking system) needs public money,'' Derks at Commonwealth Bank of Australia said. ``Until we get more details,'' the yen will remain under pressure, he said//www.quote.bloomberg.com

© 1999-2022 Forex EuroClub
All rights reserved