FINANCIAL MARKETS : Dollar Tickles 100 Yen; Smaller Stocks Revive

The dollar’s summer rally gained new steam Wednesday as a fresh Japanese banking crisis sent traders scurrying out of yen and into dollars.

Meanwhile, on Wall Street smaller stocks rebounded from widespread losses earlier in the week, while blue chips failed to get a big lift from the latest mega-merger proposal in the media business.

The Dow industrials eased 3.87 points to 4,604.57.

In currency trading, the dollar rose to a 6 1/2-month high against the yen on the heels of the failure of two large Japanese financial institutions.

The dollar jumped to 99.01 yen by the close of trading in New York, up from 98.05 on Tuesday. Early today in Tokyo, the dollar rose as high as 99.42 yen, its highest level since Feb. 8.

Traders said the flight out of yen-denominated assets and into dollar assets was prompted by some investors’ fears that the worst may be yet to come in Japan’s financial crisis--even though the government vowed that the crisis is ending.

Japanese banks and other lenders have been significantly weakened by loan losses associated with the long plunge in Japanese real estate values and stock prices.

However, Tokyo stocks finished only marginally lower Wednesday despite investors’ jitters. Analysts said foreign investors have been eager to buy Japanese stocks on the assumption that a weakening yen will boost Japanese exporters’ competitiveness.

Tokyo’s Nikkei-225 stock index lost 151.30 points to 17,983.86 on Wednesday, but early today it was up 43.81 points at 18,027.67.

In U.S. trading, the action was again dominated by smaller stocks.

Many technology issues continued to rebound, driving the Nasdaq composite index up 8.97 points to 1,012.61.

Winners topped losers on the Nasdaq market by 22 to 15, while winners had a smaller 4-3 edge on the New York Stock Exchange.

Blue-chip stocks were largely unmoved by yet another huge potential merger: Time Warner said it has offered $8.5 billion to acquire Turner Broadcasting System.

Still, analysts said the record merger activity sweeping corporate America this year may be keeping a floor under stock prices, as many investors are reluctant to sell issues that might be potential takeover targets.

Among Wednesday’s highlights:

* Revived interest in technology issues boosted Intel 1 1/2 to 60 3/8, Compaq 1 1/8 to 47 1/4, Microsoft 1 3/8 to 93 1/4, Digital Equipment 1 3/4 to 40 7/8 and Parametric Technology 3 to 54 3/4.

But Adobe Systems slumped 4 5/8 to 49 5/8. Some analysts are worried the company’s near-term earnings may be weaker than expected.

* California S&L; stocks soared after a federal appeals court ruled that the U.S. government breached a contract with Glendale Federal Bank and is liable to the bank for what may be extensive damages.

Glendale soared 1 7/8 to 16 5/8. Other S&Ls; that may also be owed money include California Federal, which shot up 1 5/8 to 15 7/8; Coast Savings, up 3 1/4 to 27; and Ahmanson, up 1 to 23 7/8.

Outside California, other potential beneficiaries include Long Island Bancorp, up 3 1/8 to 26 3/8; and Dime Bancorp, up 3/4 to 12 1/8.

* RJR Nabisco added 1 to 28 3/4, adding to Tuesday’s gains on news that Brooke Group received clearance to buy up to 15% of RJR’s stock.

* On the down side, many airline shares were weaker on news of fresh fare cuts. AMR, parent of American Air, lost 1 1/8 to 70 1/4, Delta lost 1 7/8 to 74 3/8 and UAL, parent of United Airlines, was off 2 1/8 to 151 1/4.

* In the entertainment sector, Turner Broadcasting Class A shares soared 6 7/8 to 30 1/2 on news of Time Warner’s merger bid. But Time Warner lost 7/8 to 41 3/8. Most other entertainment shares were largely unmoved.

In the bond market, interest rates were mostly lower, even though the government revised second-quarter gross domestic product to a 1.1% pace of growth.

“It is my view that the GDP report said that we haven’t made as much progress in the second quarter of eliminating the inventory overhang as we had thought,” said Hugh Johnson, chief investment officer at First Albany Corp.

The yield on the Treasury’s 30-year bond fell to 6.69% from 6.71% Tuesday.

Federal Reserve Vice Chairman Alan Blinder, in comments carried by a Swedish news agency, added to optimism that the economy’s pace remains slow enough to keep inflation in check without falling into a recession.

“Things are looking good for the soft landing in the United States, much better than a few months ago,” Blinder was quoted as saying by the Swedish news agency Direkt.

In commodities trading, silver futures prices plummeted 5% as visible stockpiles of the metal climbed sharply.

Silver opened lower after the Commodity Exchange reported that silver in exchange-approved warehouses rose by 10.9 million ounces Tuesday to 162.3 million ounces.

Silver for September delivery plummeted 28.3 cents to $5.24 a troy ounce on the Comex.

Some observers believe the silver now moving into Comex warehouses is the same metal that was removed in mid-August, when stocks plunged by 34 million ounces over a 10-day period.

Prices had zoomed 12%, from $5.22 to $5.86 an ounce, between Aug. 11 and Aug. 21.

“It was an interesting speculative play, with somebody taking stocks out of Comex and keeping it somewhere else where it was not clearly visible, and then putting it back,” one analyst said.