Dollar's fall boosts stocks

Updated: 6:50 p.m. ET.

To understand the stock market these day is to understand the dollar.

The dollar shot up Tuesday after reports that China is raising interest rates. U.S. stocks promptly headed south, with the Dow Jones ($INDU) falling 165 points to 10,979.

• See how the dollar is doing today

If rates are rising in China, the Chinese economy will cool off, and that's a problem on Wall Street because so many investors believe fervently that a weak Chinese economy sinks the global economy.

Stocks rebounded today, with the Dow finishing up 129 points, or 1.2%, to 11,108. The Standard & Poor's 500 Index ($INX) closed ahead 12 points, or 1.1%, to 1,178, and the Nasdaq Composite Index ($COMPX) rose 20 points, or 0.8%, to 2,457.

Yes, you can say it's because many companies reported strong third-quarter earnings. But the dollar was probably the bigger factor today, and it was falling.

And a falling dollar boosts profits earned abroad and makes U.S. exports cheaper. And it usually means commodities priced in dollars will rise as well: gold, copper, crude oil, steel, wheat, corn.

Gold is up to $1,344.20 an ounce. Crude oil fell below $80 on Tuesday and was over $82 a barrel today. Wheat and corn, two of the best-performing commodities this year, are higher. Corn was up 5% alone to $5.735 a bushel.

So the big winners among the 30 Dow stocks today were stocks with significant revenues coming from outside the United States or heavily dependent on the trend in commodity prices.

We're talking Boeing (BA), Caterpillar (CAT), Intel (MCD), Chevron (CVX), DuPont (DD), IBM (IBM) and Exxon Mobil (XOM).

(Caterpillar and McDonald's report third-quarter results Thursday. )

For today at least, the thinking was that maybe the Chinese  economy -- not to mention fast-growing economies in India, Brazil and Russia -- isn't going to stop in its tracks.

And that's good for U.S. companies. If General Motors were public today, its shares would be jumping. GM now sells more cars in China than in the United States.

The dollar also moved lower because some are worried about the effects of more "quantitative easing" by the Federal Reserve next month.

That's the ghastly phrase used to describe the Fed's buying in Treasury securities to add more cash to the banking system and, one hopes, give the economy a jolt.

There's been a lot of gnashing of teeth about the dollar in recent weeks. But don't forget the dollar still has real power in panics. Investors want safe places to stick their money, they often go to gold -- and to the dollar.

In fact, the stock market slumped this past spring as the Greek credit crisis battered financial markets in Europe.

The euro's value sank to $1.19 on June 8 because many speculated that Europe would fall apart.

Europe hasn't fallen apart. It looks like the situation has stabilized, and the euro is back to $1.396, a 17.3% gain.

It's lousy for tourists but not so bad for GM.