NEW YORK -- The dollar fell to historic lows against key foreign currencies on the year's last day of trading Thursday, triggering declines on the New York and London stock markets and prompting predictions the currency will sink lower next week.
Gold and silver rose.
The Dow Jones industrial average fell nearly 25 points in the first half hour of trading on the New York Stock Exchange after the dollar took a beating in Asia. The Dow recouped about half of that loss, closing 11.27 points lower at 1,938.83.
In London, stock traders ended the year in a despondent mood, with dealers blaming renewed pressure on the dollar for a slide on the London Stock Exchange. The Financial Times 100-stock index lost 47.1 points to close at 1712.7, while the 30-share industrial gauge ended down 34.7 at 1,373.3.
Tokyo's stock exchange was closed for its long New Year's break.
In New York, Bear Stearns & Co. foreign exchange trader Simon Fischer said the pre-holiday market was extremely light and predicted the dollar will continue to fall as trading picks up next week.
In New York, the dollar ended at a post-World War II low of 121 yen, down from 123.25 yen Wednesday. Earlier in Tokyo, it finished at 122 yen, down from 123.50 Wednesday.
The Bank of Japan was reported to have bought close to $1 billion worth of dollars in interventions that failed to do much for the U.S. currency.
In New York, the dollar also dropped to a postwar low of 1.5680 marks, far below Wednesday's 1.5950. Earlier in Frankfurt, the dollar closed at 1.5815 marks, vs. 1.5955 marks Wednesday.
New York traders said the dollar's worst blow of the day was dealt when the president of the West German central bank, Karl Otto Poehl, was quoted as warning that the frequent dollar-buying interventions his institution and the Bank of Japan have made in recent weeks are damaging their countries' economies.
Pohl was quoted as saying the dollar-buying interventions, though necessary, hurt the Japanese and West German economies because they force those countries to print more of their own currencies, which will eventually cause inflation.
Bear Stearns' Fischer explained Poehl's remarks were damaging to the dollar, because they echoed a statement made earlier this week by Bank of Japan Governor Satoshi Sumita that repeated interventions are not a real answer to the problem of the weak U.S. currency.
He said traders are concerned about the possibility foreign central banks will cease to support the dollar because of the apparent unwillingness of the White House to combat its decline.
In recent weeks, market participants have speculated the administration is privately condoning a lower dollar as a means of closing the U.S. trade gap.
On Dec. 31, 1986, the dollar closed at 1.9198 West German marks and 158.05 yen.
Gold closed in New York at $486.20 an ounce, up $3.50, while silver gained 6 cents to $6.682 an ounce.