FINANCIAL MARKETS : Foreign Stocks Leap in Flurry of Buying

Foreign stock markets rocketed for a second day Wednesday, with shares in Brazil, Germany, Malaysia, Canada, Switzerland, Hong Kong, Argentina and elsewhere enjoying a brisk new-year rally after mostly lagging U.S. shares in 1995.

On Wall Street, meanwhile, stocks ended mixed after helping to spark the global rally Tuesday. The Dow Jones industrial average gained 16.62 points to 5,194,07.

The dollar also surged in value, reaching 105 Japanese yen for the first time in 18 months. But the U.S. currency’s fresh strength threatens to limit American investors’ gains in foreign stocks, analysts noted.

The renewed interest in most overseas markets began with the turn of the calendar on Monday, as many U.S. and foreign institutional investors looked overseas for stock bargains following the U.S. market’s spectacular performance in 1995.

Because most foreign markets have lagged Wall Street for two straight years, investment advisers have increasingly advised clients in recent weeks that overseas shares may offer better bargains than can be found in America.

That helped precipitate a flood of cash into foreign markets on Tuesday, and the buying accelerated Wednesday, traders said.

Brazil’s Bovespa index on the Sao Paulo stock market, for example, jumped 2.1% on Tuesday and then surged 6.6% on Wednesday.

In Paris, where the blue-chip CAC index showed a small net loss for 1995, heavy buying pushed the index up 1.9% on Tuesday and 1.8% on Wednesday.

In Singapore, where stocks edged lower on Tuesday, the Straits Times index rebounded sharply Wednesday, gaining 2.1% to a 13-month high.

The foreign rally continued early today in Asia. Singapore’s index was up another 2.4% at midday; in Kuala Lumpur, Malaysia, the main stock index was up 2.1% at midday, and Hong Kong’s Hang Seng index was up 210.03 points, or 2%, to 10,607.47, the highest in nearly two years.

And in Tokyo, where markets were closed for the New Year’s holiday through Wednesday, the Nikkei-225 index closed up 749.85 points at 20,618.00 today, a 3.8% gain in a half-day session. That is the highest since Sept. 2, 1994.

Analysts say foreign markets are being supported by expectations for lower interest rates and moderate economic growth in 1996, just as those factors helped U.S. stocks in 1995.

But while investors shopped overseas Wednesday, that didn’t stop the dollar from strengthening. Traders said the dollar was boosted by growing optimism about a balanced-budget deal between President Clinton and Congress.

Investors “feel a budget deal will help shrink the U.S. current account deficit by reducing import demand, and that will be beneficial for the dollar,” Foreign Exchange Analytics Partner David Gilmore said.

The dollar rose to 104.87 yen in New York on Wednesday from 103.92 on Tuesday, and in Tokyo today the U.S. currency reached 105.25 yen, an 18-month high.

Against the German mark, the dollar jumped to 1.446 in New York, from 1.436 on Tuesday.

Unfortunately for U.S. investors who own stocks abroad, a rising dollar automatically devalues their foreign holdings. That could eventually choke off heavy buying of foreign shares by Americans, but for now many analysts expect the purchases to continue.

Meanwhile, U.S. stocks were a mixed bag Wednesday, as another sell-off in downbeaten technology issues offset blue chips’ rally. The Nasdaq composite index, heavy with tech issues, sank 12.39 points to 1,046.26.

On the New York Stock Exchange, however, winners topped losers by 15 to 9 in heavy trading.

“It’s a vicious two-tier market,” said Larry Wachtel, analyst for Prudential Securities. “If you’re in a handful of blue chips, you’re sharing in another great day. If you’re in technology, you’re getting whacked around.”

Among Wednesday’s highlights:

* Tech shares fell again after brokerage PaineWebber downgraded five makers of semiconductor-manufacturing equipment, warning of potentially weaker-than-expected earnings ahead.

Applied Materials, one of the issues downgraded by PaineWebber, slumped 3 7/8 to 37 1/2.

For a host of computer chip and semiconductor equipment makers, “the year ended flat; there is an oversupply in memory [chips] and sluggish order growth,” warned analyst Rick Whittington of SoundView Financial Group.

Other tech losers included Sun Microsystems, down 3 1/2 to 41 1/4; Micron Technology, off 2 1/8 to 39 3/8; Digital Equipment, down 3 1/4 to 59 5/8; Netscape Communications, off 8 7/8 to 126 1/2; and IBM, which lost 1 5/8 to 89 1/4.

* Among blue-chip stocks, the Dow index was lifted by Procter & Gamble, up 2 1/2 to 85 5/8; Bethlehem Steel, up 1 to 15 1/8; and Eastman Kodak, up 1 to 69 5/8.

Also, AT&T; gained 1 1/8 to 68 1/2, continuing to rise after announcing massive cost cutting Tuesday.

* Another blue-chip stock gaining from restructuring efforts was Ford Motor, which rose 1/2 to 29 7/8 after company executives said a global reorganization designed to save billions of dollars in vehicle development costs is running six to 12 months ahead of schedule.

* Railroad and airline stocks also were strong. The Dow transportation average jumped 27.51 points, or 1.4%, to finish at 2,027.88.

* Johnson & Johnson surged 3 3/8 to 87 5/8 after the government OKd marketing of its Ortho Pharmaceuticals’ tretinoin skin cream as a treatment for facial wrinkles and chronic sun exposure.

In other trading, U.S. bond yields were modestly lower as the federal shutdown went into a record 19th day. Economic statistics went unreleased, robbing the market, not to mention Federal Reserve Board policy-makers, of clues to future interest rate decisions.

Fed Vice Chairman Alan Blinder warned that the absence of economic statistics is placing a “serious hardship” on policy-makers.

In commodities trading, gold sparked to life in a new-year rally, and oil edged up to its highest level in seven months, buoyed by stormy weather in the Gulf of Mexico that forced Mexico to suspend some crude exports.