Hard Week Ends With Good News On The Economy Jobs, Stocks Up; Dollar Gains

After a gloomy two weeks in which the dollar has been pounded on foreign exchange markets, Mexico appeared to be sliding toward financial chaos and investors feared that long-term interest rates were about to skyrocket, Friday brought some good news:

The Labor Department reported that the nation’s unemployment rate dropped to 5.4 percent last month as employers added 318,000 workers to their payrolls - a reminder that the U.S. economy is still one of the healthiest in the world, with solid growth and low inflation.

The stock and bond markets rallied. Long-term interest rates, which fall as bond prices rise, retreated to their lowest levels since last summer and the Dow Jones industrial average rose 52.22 points to a record 4035.61. The gains were a strong signal that U.S. and foreign investors are still willing to buy assets whose prices are set in dollars.

The dollar held onto its gains, and in late New York trading it took 91.09 yen to buy a dollar, up from 90.50 late Thursday. And it took 1.4155 marks to buy a dollar, up from 1.3945.

Financial markets reacted positively to the austerity plan the Mexican government announced Thursday in an effort to deal with that country’s economic crisis. The Mexican peso, which set record lows against the dollar this week, and the Mexican stock market both rebounded.

Analysts said Friday’s news contributed to a portrait of a healthy economy. “The U.S. economy is more productive and has fewer problems than the economies of most other industrial nations,” said Bruce Steinberg, macroeconomics manager at Merrill Lynch & Co. in New York.

At the White House, President Clinton, who had had little to say while the dollar was being hammered, said his administration’s policies have been a key element in the economy’s performance.

“The new unemployment rate of 5.4 percent is the lowest in almost five years,” he told reporters. “We have the lowest combined rates of unemployment and inflation in 25 years. The fundamentals of this economy overall are healthier than they have been in a generation.”

While analysts agreed the report showed the economic expansion remained robust as it was about to enter its fifth year, some expressed concern it could nudge the Federal Reserve into hiking short-term interest rates an eighth time in 13 months to keep inflation under control.