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September 24, 1998
Dollar lower as giant hedge fund requires bailout
NEW YORK (Reuters) - The dollar fell Thursday on concern that an emergency
bailout of a well-respected hedge fund foreshadowed
losses for Wall Street firms and slower U.S. growth because of global
economic turmoil.
The Dow Jones industrial average fell 152.42 points to 8,001.99, erasing
most of Wednesday's 257 point gain. Also weighing on the
dollar were expectations that U.S. interest rates would soon be heading down
in the wake of remarks by Federal Reserve Chairman Alan
Greenspan Wednesday.
The dollar's losses came as financial markets in many centers retreated,
digesting news that the New York Federal Reserve Bank had
organized a group of 15 major U.S. and foreign banks to save Long-Term
Capital Management, a Connecticut-based fund that until
recently few thought would ever go under.
The dollar ended at 1.6740 German marks, down from 1.6785 at Wednesday's
close and at 134.93 Japanese yen compared with
135.85.
Long-Term, which boasts two Nobel prize winners and prominent
ex-investment bankers among its officers, saw its capital all but
wiped out by adverse market movements around the world this summer.
The consortium of firms put up a $3.75 billion stake because the fund was
seen as too big to fail. Closure could have forced it to unload
an estimated $90 billion of investments across a spectrum of unsteady
markets and may have exacerbated losses at other investment
firms.
But the infusion may only be a temporary cushion if markets continue to
move against the fund, dealers said.
"The thinking is even though they said they don't have to liquidate now,
it seems that them may have to eventually anyway," said
Jeffrey Yu, a senior foreign exchange dealer at Sanwa Bank Ltd.
snip
Michael Paauwe
mpaauwe@xxxxxxxxxx
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