FINANCIAL MARKETS : Dollar Sinks Against Yen; Dow Gains 10.62 : Market Overview

The dollar hit another postwar low against the yen Wednesday as investors bet the enormous Japanese trade surplus will keep the country’s currency strong.

* Investor optimism about falling interest rates buoyed the stock market, pushing the Dow Jones Industrial average to its second record closing this week.

* Strong demand for the Treasury’s new 10-year notes helped push the yield on the 30-year bond to another new low.

Currency

Traders said the yen was supported by a continued belief that Japan’s new government will not change the practice of running a large trade surplus.

The surplus boosts the Japanese currency because it means importers of Japanese goods need more yen to pay for them.

The dollar was mixed against other currencies. It closed at 103.64 yen in New York, down from Tuesday’s 104.70 and the lowest level since modern exchange rates were set following World War II. It was the second time this week that the dollar has hit a postwar low in New York.

Hillel Waxman, the chief foreign exchange dealer at Bank Leumi Trust Co. in New York, said speculators contributed to the dollar’s fall by “trying to bring the yen to the 100 level.”

By contrast, the dollar reached its highest rate against the Canadian dollar in five years, trading at 1.307 Canadian dollars, up from 1.293 on Tuesday.

Traders said the Canadian currency was hurt by low interest rates in Canada, mixed economic reports and concerns about national elections later this year.

In New York, the dollar rose to 1.723 German marks, up from 1.717 on Tuesday.

Stocks

Despite the rally, drug-related issues sold off as investors worried about the impact of President Clinton’s budget on the industry and about the upcoming overhaul of the health care system.

The Dow rose 10.62 points to 3,583.35, eclipsing its previous record of 3,576.08 set Monday.

In the broader market, advancing issues outnumbered declines by about 11 to 9 on the New York Stock Exchange.

Volume on the floor of the Big Board came to 268.33 million shares, up from 255.52 million the day before.

Stocks followed bonds higher after yields on 10-year Treasury notes fell to the lowest level on record in Wednesday’s strong debt-refunding auction, the second of three to replenish the government’s coffers.

Stocks received impetus early on from foreign markets. London shares ended the day sharply higher, with the Financial Times 100-share surging 34.5 points to close at a record high of 3,006.1. Tokyo’s 225-share Nikkei average ended up 238.82 points at 20,732.57. Germany’s DAX-30 average edged up 0.64 point to finish at 1,865.80.

* Semiconductor stocks performed well after a trade group Tuesday posted a stronger than expected reading on orders for chips. The so-called book-to-bill ratio rose to 1.12 in July from 1.11 in June. In NASDAQ trading, Intel rose 1 7/8 to 58 3/4.

And gold-mining stocks followed the price of precious metals lower. On the American Stock Exchange, Royal Oak Mines fell 1/4 to 5.

Credit

The yield on the benchmark 30-year maturity fell to 6.42%, below its Tuesday close of 6.44%, the lowest yield since the Treasury began regularly issuing 30-year bonds in 1977.

The bond market has been buoyed this week by the prospect of reduced government borrowing with passage of Clinton’s budget. Much of the interest in the 30-year maturity is attributed to a change, beginning this week, in the way the Treasury Department sells the bond.

On Wednesday, yields on 10-year Treasury notes fell at auction to the lowest level on record.

The average yield was 5.78%, down from 5.96% at the last auction May 12. It was the lowest rate since the Treasury began issuing 10-year notes in May, 1976.

The notes will carry a coupon interest rate of 5.75%, with each $10,000 in face value selling for $9,977.40.

A total of $11 billion in notes were sold out of bids totaling $34.7 billion.

The federal funds rate, the interest on overnight loans between banks, was 2.938%, unchanged from Monday.

Elsewhere, light, sweet crude oil for delivery in September was 36 cents higher at $17.88 a barrel on the New York Commodity Exchange.

Gold for current delivery closed at $375.30 an ounce, off $5.60 from Tuesday. Silver dropped 8.1 cents, closing at $4.670 an ounce.

Market Roundup, D6