RISE IN EXPORTS IGNITES MARKETS.(Main)

Byline: Combined wire services

A stunning 25 percent drop in the United States' monthly trade deficit electrified global financial markets Friday, launching stocks, bonds and the dollar's value skyward.

The merchandise trade deficit dropped to $13.2 billion in November, down $4.4 billion from October's $17.6 billion record amount, the Commerce Department reported. Exports of U.S.- made goods rose to a record $23.8 billion, while Americans imported $2.4 billion less of foreign goods than they had the month before. Imports still totaled $37 billion, however.

To analysts everywhere, the news meant that the United States is turning the corner on its most fundamental economic problem, that U.S. goods are gaining competitive strength in world markets, and that pressure on the dollar and U.S. interest rates should ease.

The Dow Jones average of 30 blue- chip stocks jumped almost 50 points immediately in New York, where it stayed until late profit-taking dropped the day's gain to 39.96 points. It closed at 1,956.07.

The dollar gained sharply aginst all other major currencies in heavy worldwide trading. Late Friday afternoon in New York, the dollar was trading at almost 131 Japanese yen, more than four yen above Thursday's level, and at 1.69 West German marks, up from 1.63 Thursday.

Bond prices also leapt, as bellwether Treasury bonds jumped $25 per each $1,000 in face amounts, while their yields, which mirror interest-rate trends, dropped to 8.76 percent from 9.02 percent, the Associated Press reported.

By contrast, the report last month of October's $17.6 billion trade gap triggered a 47-point drop in stock prices and sent the dollar plunging to 40-year lows.

Other government reports on Friday also held good news for financial markets.

The Labor Department said wholesale prices grew by a tame 2.2 percent for all of 1987 and actually fell 0.3 percent in December. The Federal Reserve, meantime, said output in the industrial sector rose 0.2 percent in December, the biggest increase since 1984.

One negative note, though, came from another Commerce Department report that said business inventories jumped 0.8 percent in November, the second big monthly increase, while total sales were falling.

The department said inventories on shelves and back lots rose $5.57 billion in November to a seasonally adjusted $695.5 billion, following a 1.1 percent advance in October.

Business sales edged down 0.2 percent to a seasonally adjusted $461.4 billion in November after being basically unchanged in October.

The second consecutive month of sluggish sales and surging inventories raised concerns among economists that unwanted inventories will have to be worked down in coming months.

Such a scenario can trigger a recession if the factory layoffs and shutdowns that occur are widespread enough. But even with two months of big inventory increases, many analysts said they believed the country would be able to avoid a recession, in part because of expected continued strength in U.S. sales aboard.

But for the most part, reaction to Friday's news was positive.

"The trade figure is extremely positive, far better than expectations," said Bruce Steinberg, senior economist for Merrill Lynch in New York. "That's why you're getting a bond and dollar rally.

"The most encouraging part was the huge gain in exports," Steinberg said. "The U.S. is enjoying an export boom, and that's revitalizing the industrial sector."

Commerce Secretary William C. Verity said the numbers were "good news by any test. ... Exports are now the chief engine of economic growth, up nearly 20 percent from a year ago."

But Verity added that "the nation's trade deficit for all of 1987 will be another record - at least $170 billion.

"We have a long way to go," he said.

Surging exports of U.S. manufactured goods highlighted the trade data. Such exports climbed almost $1.8 billion above October's level, while manufactured imports dropped $1.5 billion.

That $3.3 billion swing represents "the best news" of "an A-plus trade improvement," said Jerry Jasinowski, chief economist of the National Association of Manufacturers.

"Manufactured exports were strong across the board, with indications that U.S. capital goods are becoming more competitive in foreign markets," he said.

U.S. manufactured exports totaled $16.2 billion, while manufactured imports totaled $28.4 billion. Manufactured goods constitute 80 percent of the total trade deficit.

All week long, financial markets were skittish as traders awaited Friday's figures. Insiders called this "the Robinson Crusoe market," the Wall Street Journal said, because "everybody's waiting for Friday."

The monthly statistics are widely regarded as unreliable because they are not adjusted for inflation or seasonal fluctuations, and because they measure dollars rather than merchandise volume. That can be misleading when the dollar's value is so volatile.

Nevertheless, financial markets are obsessed with these numbers because they measure, however imperfectly, progress on America's worst economic problem.

"The interesting thing here is that psychologically, this provides a huge boost to financial markets," said Mickey Levy, chief economist for Philadelphia's Fidelity Bank. Because stronger trade numbers make the dollar's value soar, Levy said, "the Federal Reserve no longer has to prop up interest rates to prevent the dollar from falling."

Levy said next month's trade-deficit number could fall to as low as $10 billion. Like most economists, he believes the economy is weakening substantially right now, but this evidence of a trade turnaround will permit the Fed to lower interest rates to spur growth, he said.

"I would expect the Fed to move by early spring," Levy said.

By then the trade numbers might not be so rosy, however, if the manufacturers association's Jasinowski is correct. He said Thursday that monthly trade figures should improve twice, but then the deficit probably will grow again as a result of the dollar fall last month.

"The dollar has to stabilize before we can see a consistent run of monthly trade figures," Jasinowski said. "I see some spectacularly good numbers coming in 1988," he added, but not before "late spring or early summer."

Not everyone was jubilant about Friday's trade numbers. Emphasizing that the nation still will register a record annual trade deficit for 1987, Rep. John Dingell, D-Mich., said "a $4 billion improvement in one month ... is scarcely a bump on the road to national bankruptcy."

Both Dingell and AFL-CIO economist Rudy Oswald said the only answer to the trade deficit is to pass the trade legislation pending before Congress.

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