Trade War Fears Send Dollar Plunging : Markets: U.S. currency drops to nearly six-month lows against the yen, sending Japanese stocks into a tailspin.

The U.S.-Japan trade rift sent the dollar plunging to nearly six-month lows against the yen Monday, pummeling Japanese stocks and pulling other Asian markets down as well.

The dollar’s slump, and Asian markets’ slide, continued early today, as investors feared a damaging trade war could erupt between the two countries. Tokyo’s Nikkei stock index, which slid 531.45 points to 19,459.25 on Monday, was off 501.95 points or 2.6% to 18,957.30 at midday today.

Meanwhile, the U.S. stock market shrugged off the concerns, closing mixed Monday. Long-term U.S. bond yields rose modestly, while gold gained.

In New York, the dollar closed at 102.65 yen on Monday, a drop of 4.2% from 107.20 on Friday, as traders reacted to the weekend collapse of trade talks between President Clinton and Japanese Prime Minister Morihiro Hosokawa.

Clinton had sought numerical targets for trade in the fight to open what the United States contends are unfairly sheltered Japanese markets. But Hosokawa balked.

Clinton’s tough talk after the trade summit immediately raised fears of unilateral trade sanctions against Japan. Also, some analysts believe the United States now will encourage a stronger yen and weaker dollar in an effort to instantly cheapen prices of U.S. goods sold in Japan.

Hence, currency traders quickly knocked the dollar down on Monday. It traded at one point at 101.00 yen, a level not seen since Aug. 17, the day the dollar hit a post-World II low of 100.40 yen.

Early today in Tokyo the dollar traded just above 102 yen, before Japan’s central bank intervened to stabilize the currency.

Meanwhile, the Tokyo stock market’s tumble reflected investor worries that the yen’s soaring value will crimp Japanese exports, by automatically raising their prices here and elsewhere abroad.

Fears of a trade war also weighed on other Asian markets, most of which are export economies. Hong Kong’s Hang Seng stock index sank 515.22 points, or 4.5%, to 10,988.81 on Monday, though analysts said worries about rising interest rates also hit Hong Kong shares.

At midday today the Hang Seng was off 50.75 points to 10,938.06.

South Korea’s main stock index dropped 15.77 points to 901.38 on Monday and was off 2.08 points early today.

On Monday, the President Clinton refused to rule out a possible all-out trade war with Japan, although he said he would take “some days” to mull the full range of options before imposing sanctions on Tokyo.

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Meanwhile, the U.S. stock market ended mixed in choppy trading Monday.

The Dow Jones industrial index added 9.28 points to 3,904.06, and advancing issues narrowly outnumbered declines on the New York Stock Exchange.

Also, smaller stocks gained ground, with the Nasdaq composite index up 4.06 points to 785.45.

But some broader indexes, such as the NYSE composite, were marginally lower. Big Board volume came to a moderate 263.2 million shares.

Though the market had a generally calm reaction to the dollar’s plunge, traders noted that the Dow was up more than 25 points early in the day, a gain that evaporated as the dollar’s decline intensified.

Losses in most European markets overnight, in addition to the slump in Asian stocks, weighed on U.S. investors.

Still, analysts noted that a falling dollar was bullish for U.S. exporters and for auto makers and other industrial companies that compete head-on with the Japanese.

“In the end it’s going to allow them to penetrate the Japanese market more, and in the short-term it benefits them because they become more competitive,” said Patrick Moriarty, chief investment officer at Bank Julius Baer.

Among the market highlights:

* Auto stocks rose. Chrysler gained 3/4 to 59 3/4, Ford added 1/4 to 65 3/4 and GM was up 5/8 to 61 3/4.

* Other industrial winners included Whirlpool, up 2 1/2 to 70 1/2; Boeing, up 1 to 44 5/8; GE, up 7/8 to 108 1/8; and United Technologies, up 2 to 67 3/8.

* Rebounding tech stocks included Adobe Systems, up 1 1/8 to 30; Sun Microsystems, up 1 3/4 to 26 1/2; Lotus Development, up 2 1/2 to 58 1/4; and Newbridge Networks, up 1 5/8 to 64 3/4.

* Pfizer fell 1 1/8 to 58 1/4 on reports the drug giant is trying to forge a strategic alliance with foreign rival Glaxo. Glaxo’s NYSE-traded shares gained 1/4 to 19.

* QVC Network gained 1 5/8 to 48 1/2 amid speculation that rival Viacom had won the protracted bidding war for Paramount Communications. Viacom class A fell 1 5/8 to 34 7/8, and Viacom class B dropped 1 3/4 to 29 7/8. Paramount fell 3/4 to 76 1/8.

* WMX Technologies gained 1/8 to 24 7/8 after prosecutors in California said they wouldn’t appeal a decision last week dismissing theft charges against a WMX Technologies unit and eight employees.

* Iwerks Entertainment shot up 2 1/4 to 25. The Burbank-bases special-effects firm said it will build a series of specialty theaters for a chain of family complexes owned by Blockbuster Entertainment.

* Telmex gained 7/8 to 73 7/8 on the NYSE, even though the Mexican stock market closed lower again. The Mexico City stock exchange’s Bolsa index fell 23.23 points to 2,778.83.

Other Markets

Long-term Treasury bond yields rose slightly on muted fears that the dollar’s plunge against the Japanese yen would prompt Japanese investors to sell U.S. bonds.

The 30-year T-bond’s yield rose to 6.45% from 6.40% on Friday.

But yields on shorter-term securities barely budged.

Prospects for a weakening dollar sparked fears that Japanese investors would dump dollar-denominated securities--especially bonds--to cut exchange rate losses. When the dollar falls against the yen it automatically erodes the value of U.S. securities owned by Japanese.

But analysts said there was little indication that Japanese investors were selling off their holdings of Treasury securities.

A report from the Federal Reserve Bank of Atlanta on regional economic conditions also prompted some bond selling, Chan said. The survey showed a surge in production by manufacturers who expected to raise prices in January.

While regional in scope, the report was viewed as an indicator of national business conditions and may have focused attention on the timing of the Federal Reserve’s next move to raise short-term interest rates, Chan said.

In other markets:

* Gold gained $3.90 to $383.90 an ounce on the New York Comex, while silver rose 9.5 cents to $5.34. Traders noted that a falling dollar raises the risk of higher import prices, which could boost inflation, thus increasing precious-metals’ attractiveness.

* Warming sunshine spread from the East Coast to the Midwest Monday, pushing March crude oil futures down 59 cents to a seven-week low of $14.13 a barrel.