DOLLAR RISES AS STOCK MARKET STABILIZES BONDS SPIKE ON UNEMPLOYMENT NEWS

DOLLAR RISES AS STOCK MARKET STABILIZES BONDS SPIKE ON UNEMPLOYMENT NEWS

The U.S. dollar rose Thursday after the stock market appeared to be stabilizing somewhat, following the sharp drop in stock prices Wednesday.

Weekly U.S. jobless claims figures were worse than expected, with an 18,000 increase to 417,000 for the week ended July 15. Bonds spiked higher on the news, but later turned to post losses. The dollar turned lower ahead of the bond decline, as talk circulated for a further cut in rates by the Federal Reserve in August, after the weak claims numbers were released.Treasury prices managed only a brief uptick when the Philadelphia Federal Reserve Bank's July report showed almost no improvement from its weak readings in June.

The Philadelphia Fed's index of local manufacturing activity came in at minus 23.7 in July, just slightly above the minus 23.4 reading in June.

Analysts said the bond market's inability to rally on either the Philadelphia Fed data or the jump in jobless claims show just how negative market sentiment has become, following the big losses posted in recent sessions.

The next move by the Bundesbank remains questionable, but the Fed is expected to lower rates, thus putting the deutsche mark in a more favorable position and the dollar on the defensive.

It was widely noted that the sell-off Wednesday in the stocks and bonds was a key factor in currency trading, much in the sense that it served as an excuse to dump the dollar, traders said.

Many U.S. funds and interbanks last week were confident the dollar would get past 90.00 yen, even moving to 95.00, but they forgot that the basics did not support the move, bringing the dollar back to reality, one dealer said. He also stressed that intervention remains a constant threat and should keep the

dollar above 86.25 yen.

Japanese exporters, while idle at this point, are expected to be back in the market selling dollars in August, but are not expected to wait if the

dollar rallies above 90.00 yen.

Fear of central bank intervention is largely responsible for keeping the

dollar where it is, traders said. There were no reports Thursday of central bank efforts, but just the threat has kept the dollar supported, specifically vs. the yen. Traders added intervention could take place near Wednesday's yen lows of 86.88. Dealers said they will look for concerted central bank efforts if the dollar nears 86.50 yen.

The Bank of Japan and U.S. Federal Reserve are expected to enlist the help of the Bundesbank in the next round of intervention.