ParfumGigi@aol.com

By Bill RigbyReuters

Monday, November 27, 2006; 5:45 PM

NEW YORK (Reuters) - The decline of the dollar over the past few weeks may cast a worrying shadow over the U.S. economy, but it could boost results for some corporations.

Fourth-quarter earnings may get a kick from sales in foreign currencies -- now worth more against the lowly dollar -- while the growing value of the euro and yen signals vibrant overseas markets for U.S. companies' goods, analysts said.

"I wouldn't say that it's single-handedly a major factor in terms of the translation benefit, but it does make North American production more competitive with a lot of the rest of the world," said AG Edwards analyst Chris Kotowicz.

The dollar has dropped about 5 percent in value against the euro since mid-October -- hitting a 20-month low on Monday -- while it has dropped nearly 4 percent against Japan's yen.

The greenback has been squeezed by a series of lukewarm U.S. economic indicators and fears that foreign investors may trade in dollar investments for currencies yielding greater interest rates.

That could be damaging to U.S. industry in the long run, but in the short term, it could be good news for large industrial companies such as General Electric Co. <GE.N>, United Technologies Corp. <UTX.N> and 3M Co. <MMM.N>, which have all steadily increased their international sales in recent years.

According to Kotowicz's research, 10 out of 18 U.S. industrial companies he follows generated 40 percent or more of their income from foreign regions last year, compared with only one company in 1997.

In addition to a favorable exchange rate for foreign earnings, a stronger euro and yen reflect improving European and Japanese economies, which means stronger demand for elevators, construction equipment, aircraft engines, air conditioners and the like. The same may hold true for auto, chemical and steel makers, industry-watchers said.

The lower dollar should actively help the battered U.S. auto industry -- which has accused Japan of maintaining an artificially weak currency to benefit its export industries -- according to industry experts.

The Harbour-Felax Group, a Detroit-based auto consulting firm, has estimated that every one yen gain in the value of the dollar against the Japanese currency translates into a price advantage of $174 per vehicle for Japanese automakers.

With the dollar declining, that price advantage is waning, which should help Detroit-based automakers General Motors Corp. <GM.N>, DaimlerChrysler AG's <DCXGn.DE> Chrysler Group and Ford Motor Co. <F.N>.

A similar effect may help larger chemical companies like Dow Chemical Co. <DOW.N>, DuPont Co. <DD.N> and Celanese Corp. <CE.N> said Hassan Ahmed, an analyst with HSBC.

"I don't expect trade patterns to shift, primarily because energy prices are high, but currency translation-wise the diversified names would benefit more than the U.S.-centric ones." said Ahmed.

Chemical majors Dow, DuPont and Celanese generate about 30 to 40 percent of their revenue from Europe and would stand to benefit the most if a weak dollar trend were to continue, he added.

The weaker dollar is "not good for the country but great for steel companies," said Chuck Bradford, metals analyst at Soleil Securities. "Most of the problem that steel companies had in the 1990s was because of the strong dollar that made U.S. companies less competitive," he said.

The dollar's slide could be more damaging, however, if it signals a lack of faith in the U.S. economy and encourages inflation, some analysts warned.

"The U.S. has a huge trade deficit, so as the dollar becomes weaker those products we are importing become much more expensive," said Larry Peruzzi, senior U.S. equity trader at The Boston Company Asset Management. "We're importing inflation. The price of that (foreign) car just got a little more expensive."

Some said the decline in the dollar would only be offset by greater foreign sales at best.

"It (the falling dollar) means corporate earnings are worth less -- they buy less in terms of other currencies," said Peter Schiff, president at investment brokerage Euro Pacific Capital Inc. "Some U.S. companies involved in exports might be able to offset that by earning more dollars, but they are just earning more dollars of diminished value."

If the weakness in the dollar continues, it would eventually cause concern about the U.S. Federal Reserve raising interest rates to combat inflation, some analysts warned.

"Glass half full on the US dollar: it will boost U.S. large cap, multinational earnings," said Merrill Lynch's Richard Bernstein, in a note to clients. "Glass half empty on the US dollar: the Fed will find it increasingly difficult to ease if the dollar does continue to weaken."

(Additional reporting by Nick Zieminski, Euan Rocha, Lisa Lee and Kevin Krolicki)