Orthogonally polarized pulses copropagating in birefringent fiber are observed to develop coherent terahertz intensity oscillations owing to modulational instability. Rather than forming spontaneously from noise with random phase, the modulational instability is coherently initiated from wave-breaking oscillations. This results in stable terahertz oscillations that have little timing jitter from pulse to pulse. Experimentally this is evidenced by the terahertz modulation observed in cross correlations that are obtained by averaged sampling over many pulses. Numerical integrations of coupled nonlinear Schrödinger equations verify this description. © 1991 Optical Society of America.