Dollar Keeps Slipping but Stocks Look to Hold Firm

Japan's second-quarter GDP expanded at a 0.2% clip, sending stock traders there a mixed message.
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After starting the morning on weak footing, stocks have reversed course, and it appears that there will be a bit of an uptick at the opening bell.

Traders are uncertain whether early gains will hold. A drop in the dollar, compliments of a stronger-than-expected

gross domestic product

report from Japan, is weighing on the bond market this morning, and there's a chance it could spill over into equities.

Japanese GDP for the second quarter expanded 0.2% over the previous quarter. Economists had expected that, after the first quarter's shockingly strong performance, it would be natural to see a little give-back, and GDP would contract. Meanwhile, in the currency market, traders were worrying that if GDP came in weak, Japanese authorities would use the resulting weakness in the yen as an opportunity to intervene -- perhaps with the U.S. -- and bolster the dollar. Now, with the

Bank of Japan

nowhere in sight, the all clear has been sounded to buy yen.

At 9 a.m. EDT, the dollar was down 2.3 yen to 108.7. The 30-year Treasury was down 12/32 to 100 13/32, putting the yield at 6.01%.

The long bond "is kind of near a fairly important area," said Charles Farra, president of

Global Trading LLC

. If the bond futures break below 113, "I think things could start to get messy on the downside with those guys."

"If the bond market gets worse, at some point that will weigh on the stock market," said Dan Mathisson, head stock trader at

D.E. Shaw Securities

.

The

S&P 500

futures were up 1. They closed near fair value, so that indicates some slight strength at the open.

Japan's surprising GDP strength gave a mixed message to the Tokyo stock market.

On the one hand, the official end to Japan's recession suggests that the country really is on the way to a sustainable recovery, and that economic strength will follow. On the other, the yen's strength in the wake of the report means further pricing pressures on Japanese companies at home and abroad. Furthermore, the strength of the GDP report may mean that the government's next round of fiscal stimulus will not be as large as hoped.

Good reasons not to do anything. The

Nikkei

added 36.18 to 17,677.56.

Hong Kong stocks gained, helped by both the suggestion that Asia's economic driver is getting back on its feet, and optimism that China is moving closer to

World Trade Organization

membership. After talks in Auckland with Chinese government officials, U.S. Trade Representative

Charlene Barshefsky

told reporters that both countries were keen to "re-engage in substantive discussion."

The

Hang Seng

jumped 498.25, or 3.7%, to 13,854.88.

Europe's big bourses were moving higher. In Frankfurt, the

Xetra Dax

was up 33.1 to 5433.8. Paris'

CAC

was up 25.62 to 4706.23.

Michelin

was the big winner there, up on strong first-half results.

London traders were still trying to recover from yesterday's surprise rate hike by the

Bank of England

. The

FTSE

was down 2.1 to 6251.5.

Thursday's Wake-Up Watchlist

By

Tara Murphy

Staff Reporter

Mergers, acquisitions and joint ventures

NBC

is close to assuming a 32% stake in

Paxson Communications

(PAX)

, giving the network access to a slew of television stations around the country,

The Wall Street Journal

reported. The

Journal

also reported that agreement carries an estimated value of $400 million.

Viacom's

(VIA) - Get Report

decision to quit its venture with

UPN

could end up costing the company greatly,

The Wall Street Journal

reported. Viacom is breaking ties with UPN in an effort to gain government approval for its acquisition of

CBS

(CBS) - Get Report

.

Analyst actions

Morgan Stanley

sliced its rating on

AllState

(ALL) - Get Report

to neutral from market outperform.

U.S. Bancorp Piper Jaffray

raised its price target on

Alpha Industries

(AHAA)

to 65 from 56. The stock closed Wednesday at 56.

JP Morgan

began coverage of

Bemis

(BMS) - Get Report

with a market performer rating.

Credit Suisse First Boston

sliced its third-quarter earnings estimates on

Ingram Micro

(IM)

to 13 cents a share from 42 cents. Yesterday, Ingram warned investors that it expects to post third-quarter earnings between 10 cents and 14 cents a diluted share, greatly missing the analyst estimate of 41 cents. The company also said that its current chairman and CEO, Jerre Stead, plans to relinquish his role as chief executive as soon as a successor is found.

PaineWebber

downgraded shares of

Host Marriott

(HMT)

to neutral from attractive.

Earnings/revenue reports and previews

CKE Restaurants

(CKR)

reported second-quarter earnings of 20 cents a share, in line with the 11-analyst estimate of 20 cents but down from the year-ago 42 cents. The company said it plans to sell 350 of its restaurants over the next year.

Dave & Busters

(DAB)

posted second-quarter earnings of 15 cents a share, in line with the eight-analyst estimate of 15 but down from the year-ago 21 cents.

1-800-Flowers.com

(FLWS) - Get Report

posted a fourth-quarter loss of 8 cents a share, better than the two-analyst estimate for a 9-cent loss but reversing the year-ago 5-cent profit.

Quick Silver

(ZQK)

reported third-quarter earnings of 24 cents a share, beating both the seven-analyst estimate of 23 cents and the year-ago 18 cents.

Offerings and stock action

RSL Communications

(RSLC)

set an initial public offering of its Australian unit.

Miscellany

Bankrupt

Boston Chicken

said that its executive vice president and CFO, Lawrence White, has left the company to assume a similar role at

CBRL Group

(CBRL) - Get Report

.

The FBI is questioning

Food and Drug Administration

regulators to determine how

American Home Products

(AHP)

received approval in 1996 for its controversial diet drug

Redux

,

The Wall Street Journal

reported.