The dollar sank today and interest rates rose after the government reported a jump in the nation's trade deficit to $12.2 billion. The stock market defied pessimism, though. Prices were mixed in early trading and the Dow Jones average of 30 industrial stocks was 6.03 points higher at 2,132.29 an hour after the New York Stock Exchange opening. A record level of American exports was swamped by an all-time high in imports, the Commerce Department announced. The imbalance between what the United States imports and what it sells abroad climbed by $2.7 billion over a July deficit of $9.5 billion. The July figure had been the smallest monthly imbalance in more than three years. Economists had expected an increase for August, but the actual result was worse than the $11.3 billion imbalance many forecasters had predicted. From the point of view of inflation-wary investors, the combination of strong exports and strong imports was ``probably the worst combination you could get'' because it signals possible overheating of the economy, said Michael Moran, chief economist of Daiwa Securities America Inc. Even before the figures were released, financial markets headed lower because of unease over what the government would report. The Dow Jones industrial average fell by 30.23 points on Wednesday, its biggest decline in nearly two months. The dollar's decline was not huge because the dollar had already fallen steadily this week in response to investors' fears of a bad trade number. A big deficit increases the likelihood that the dollar will need to decline to make American goods cheaper in world markets. Moments after the release of trade figures at 8:30 a.m. EDT, the dollar fell to just above 126 Japanese yen and less than 1.82 West German marks. But traders had second thoughts and the currency recovered part of its lost ground. Two hours after the trade figures' release, the dollar was traded at a little over 127 yen and under 1.82 marks, down from more than 129 yen and 1.83 marks Wednesday. The dollar has now retreated to its levels of late June and early July. Long-term interest rates rose. That reflected investors' concerns about inflation and a declining dollar, which would prompt investors to switch money from dollars into other currencies. The yield on the Treasury's 30-year Treasury bond, a key measure of long-term rates, rose to 8.95 percent from 8.90 percent late Wednesday. That reflected a decline in its price as inflation-wary bondholders sold the securities.
