More on fund...look like Las Vegas...
Dollar Lower As Giant Hedge Fund Requires Bailout .
06:20 p.m Sep 24, 1998 Eastern
By Alden Bentley
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.
Hedge funds and other investors who make enormous speculative bets with borrowed money can see losses snowball when lenders demand that they top up collateral -- in what is known as a margin call -- forcing them to liquidate positions in declining markets.
In a possible harbinger of bad news for U.S. financial firms, Switzerland's UBS AG, Europe's biggest bank, said market turmoil since August had caused a substantial drop in third quarter income.
Hopes that the Fed will shield the U.S. economy from any global downturn were heightened Wednesday after Greenspan said action was needed soon to stabilize the contagion.
The remarks were the strongest indication yet that the central bank could lower interest rates under its control when policy makers meet Tuesday.
Lower U.S. interest rates would make dollar-denominated financial instruments less attractive to investors.
Elsewhere, the British pound jumped to $1.6970 from $1.6849. The dollar fell to 1.3857 Swiss franc from 1.3895 and to Canadian $1.5127 from C$1.5170.
Copyright 1998 Reuters Limited. |
