NEW YORK, DEC. 20 -- The Dow Jones industrial average inched nearly 3 points higher today, erasing a 28-point early loss and posting a new 14-week closing high in a confused reaction to news that Soviet Foreign Minister Eduard Shevardnadze resigned.
The response in the currency markets was more clear-cut: The U.S. dollar surged.
The Dow tumbled 18 points at the outset on jitters that the departure of Shevardnadze, heretofore a close ally of Soviet President Mikhail Gorbachev, could augur more political turmoil in the Soviet Union.
While the bond market remained depressed throughout the session, at least partially on the Shevardnadze news, the initial reaction in stocks was a knee-jerk, program-driven drop. Once investors realized that losses would be contained near the Dow level of 2598, buyers stepped in.
Many traders dismissed the news as irrelevant to the U.S. economy, while others viewed it as a sign of impending chaos in the Soviet Union that could hurt the financial markets.
Peter Canelo, chief investment strategist for Bear Stearns & Co., said that turmoil in the Soviet Union might reduce oil exports from that country and push up Western European interest rates because of political skittishness, but that the effect was minimal for U.S. markets overall.
Foreign exchange traders, however, universally interpreted political tensions in the Soviet Union as a signal to sell the German mark. The mark, which has been setting historic highs against the dollar in recent months, fell against the dollar on the theory that Germany would suffer much more than the United States from turmoil in the Soviet Union.
The dollar gained an average of 2 percent against European currencies, rising nearly 3.5 pfennigs to above 1.51 German marks.
Kurt Richebaecher, a Frankfurt-based economist, said it was difficult to gauge the long-term impact of Shevardnadze's resignation on the currency markets because they were vulnerable today to technical factors after the dollar's long slide and because the volume of trading was thin.
"You don't know exactly what's causing it. Are these dollar bulls who are buying, or dollar bears who are short covering?" Richebaecher said.
Others saw more staying power in the dollar's rise. "Dollar strength has got to be seen as bullish here," said strategist Michael Metz at Oppenheimer, "because for most of this year foreigners have been pulling money out of the U.S. stock market, much of it to invest in Europe. Now perhaps we're beginning to see a reversal of that trend."
At the close, the Dow stood at 2629.46, up 2.73, while declines edged advances on the Big Board on moderately active volume of 174 million shares.
Bank stocks, a group upon which the broad market has depended for leadership in recent weeks, finished higher. Manufacturers Hanover finished up 1 5/8 at 24 1/8, Citicorp gained 1/2 to 13 3/4 and BankAmerica tacked on 1 3/8 to 28, all in heavy trading.
Brokerage firms traded narrowly mixed, however, after Prudential, parent of Prudential-Bache Securities, announced that its subsidiary will incur a loss of $250 million in 1990.
American depositary receipts for Rupert Murdoch's News Corp. tumbled 7/8 to 7 1/2 amid perceptions that Murdoch is negotiating to reschedule billions of dollars in company debt.
The Dow transports slipped 1.32 to close at 915.67, while the utilities slumped 1.70 to 209.88.
Broad stock indexes closed narrowly mixed. The Standard & Poor's 500 was down 0.08 at 330.12, the New York Stock Exchange Composite down 0.03 at 180.32, the Value Line up 0.03 at 240.72, the Amex Market Value down 0.16 at 306.49, and the Nasdaq Composite up 1.08 at 372.30.