Stocks finished little-changed after a roller-coaster session as investors tried to figure out the Federal Reserve's latest statement on inflation and interest rates.
As expected, the Fed left the federal funds rate unchanged at 5.25% and said core inflation has "improved modestly." But policymakers also said that their main concern was that inflation might fail to moderate.
"The Fed's been engaged in a real delicate balancing act," said Bruce Bittles, chief investment strategist at Robert W. Baird. "They're concerned, on the one hand, about inflation and perhaps excess liquidity. But, on the other hand, they've got to worry about housing and whether that anchor is actually going to pull the economy underwater."
"The Fed statement has left enough uncertainty in the markets as it remains data dependent," said Bill Gross, manager of the world's largest bond fund at PIMCO.
Most of the S&P 500 sectors traded in the green in the final half hour of trading, with telecom leading the gainers. General Motors was the biggest percentage gainer on the Dow after the automaker reached a deal to sell its Allison Transmission unit for $5.6 billion to private equity firms Carlyle Group and Onex Corp.
Economic data earlier in the session spooked investors. The Commerce Department said the final revision of first-quarter Gross Domestic Product showed the U.S. economy grew at a 0.7% real annual pace, up slightly from the previous estimate of 0.6%, but below Wall Street forecasts of 0.8%. Also a core inflation indicator within the report was revised upward, causing concern that the Fed would continue to emphasize inflation.
Treasury prices fell, sending yields higher.
The Labor Department said jobless claims fell last week by 13,000 to 316,000. Analysts were expecting first-time claims for unemployment benefits to rise.
Wall Street heard more evidence of the slump in the housing market from KB Home. The No. 5 U.S. home builder said its net profit fell, citing an oversupply of new and resale housing inventory and continued weak demand. KB Home reported a net loss of $1.93 a share for its fiscal second quarter, compared to a profit of $2.45 a share a year earlier.
Shares of Cisco Systems rose after the company was upgraded to buy from neutral at Merrill Lynch. Intel also rose after Lehman Brothers upgraded the stock to overweight.
Another tech was not faring as well. Novellus Systems , a semiconductor equipment maker is down after warning its second-quarter results would come in at the low end of its forecast amid weakness in the chip market.
Bed Bath & Beyond was lower after the home goods chain lowered its full-year profit target, citing uncertain economic trends.
Monsanto beat Wall Street estimates, reporting a sharp increase in third-quarter earnings due to a strong agricultural season. The company said it earned $1.03 a share. On an adjusted basis, earnings were $1.02 a share. Analysts were expected earnings of 98 cents a share, according to Thomson.
New York light sweet crude futures briefly traded above $70 a barrel after a U.S. government report showed an unexpected drop in gasoline stocks amid the peak summer driving season.
And the preliminary agreement on editorial independence between Dow Jones and News Corp. would give Rupert Murdoch's News Corp. complete control over hiring and firing of Dow Jones editors, the New York Times reported.
European Stocks Close Higher
European stock markets made solid gains Thursday.
In corporate news France's Economy Minister Christine Lagarde said there is no firm deadline for completion of the merger between Gaz de France and Suez and the liberalization of France's energy markets on July 1 would not mark a cut-off date. Shares of Suez lagged in a positive Paris CAC-40, while GdF was higher.
And shares of Imperial Tobacco bucked the positive trend in London's FTSE-100, falling on a report that it is heading into a bidding war for cigarette-makerAltadis with private equity firm CVC Capital Partners.
The Frankfurt DAX also finished in positive territory.
Meanwhile, shares in J Sainsbury rose 0.9% as property mogul Robert Tchenguiz doubled his stake in the British supermarket chain operator to about 10%, Reuters reported, citing a person familiar with the situation.
On the earnings front, HMV posted a 51% fall in full-year pretax profit. But shares of the British music and books retailer gained 1.6% on an improvement in like-for-like sales in the most recent quarter.
Asian Markets Higher
The main Asian benchmarks continued their upward march in the afternoon session on the heels of a tech and energy rebound in the U.S.
In Japan, the Nikkei 225 closed higher. Major automakers drove the index higher. Toyota Motor shares climbed more than 1% on a Goldman Sachs upgrade.
Japanese 7-Eleven-owner Seven & I is to boost its U.S. expansion by spending $2.4 billion in the region over the next four years and opening 1,000 new stores.
Shares of Bridgestone rallied after the tyre maker lifted its annual net profit forecast by 18% on the yen's recent decline. A weaker yen translates into higher profits from overseas sales.
In South Korea, the KOSPI rebounded more than 1% from four straight sessions of losses. Shares of Hyundai Heavy led the index.
Power utility provider KEPCO also advanced after announcing plans to buy back shares from a government agency later this year.
Taiwan's TAIEX trailed the region's gains. Reports that the LCD sector could peak between May and July encouraged buying. But shares of the second largest LCD maker, AU Optronics were lower.
In Australia, the S&P ASX 200 ended up 1.3% bringing relief to investors after a five-day losing streak.
Shares of Consolidated Minerals leapt 5%, reversing the previous session's plunge after saying it has received an incomplete takeover offer from Territory Resources. The new $700 million offer outbids Pallinghursts' previously "agreed" amount.
In Southeast Asian markets, Singapore's Straits Times Index was 0.5% higher. Shares of United Test and Assembly Center continued to rise on a private equity buyout despite rumours of a possible Moody's ratings downgrade.