The Dow fell for a fourth straight day Wednesday after the Fed said it expected to keep interest rates exceptionally low for an extended period.
The Dow Jones Industrial Average lost 23.05, or 0.3 percent, to close at 8,299.86.
The S&P 500 squeaked out a 0.7 percent gain, while the tech-heavy Nasdaq got a boost from Oracle's earnings and ended up 1.6 percent.
The Dow had been up more than 100 points earlier in the day as investors cheered the latest Treasury auction and a better-than-expected durable-goods report.
But gains began to erode soon after the Treasury auction, in the hour or so leading up to the Fed statement.
The Fed said that the "pace of economic contraction is slowing" but that it "continues to anticipate that economic conditions are likely to warrant exceptionally low levelsof the federal-funds rate for an extended period."
The Fed also said it would "employ all available tools to promote economic recovery and to preserve price stability." Policy makers didn't introduce any new debt buyback plans.
The Treasury sold $37 billion of five-year notesat a high yield of 2.7 percent — not as aggressive as the prior sesssion's auction of two-year notes but still solid demand and pricing. The government sold $40 billion of two-year notes on Tuesday.
The market was buzzing about a lawmaker's allegatoin that the Fed engaged in a "cover-up" over its involvement in the Bank of America-Merrill Lynch deal.
The Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Rep. Darrell Issa, the top Republican on the House Oversight Committee, said in a statement.
Earlier, investors cheered news that orders for durable goods, big-ticket items like refrigerators and cars, rose 1.8 percentlast month, triple the 0.6-percent gain expected, amid strong aircraft sales. Excluding volatile transportation components, orders were up 1.1 percent.
A plunge in durable goods orders in December/January "overstated underlying weakness as panic temporarily set in," Joshua Shapiro, chief U.S. economist at MFR, wrote in a note to clients. "Now, with it appearing as if the world is not ending, some of the activity that should have occurred in those months has trickled into the data. However, the overall picture is still soft."
And, on the housing front, new-home sales fell 0.6 percent to a 342,000 annual rate in May, while mortgage applications rebounded last weekfrom a seven-month low as mortgage rates have begun to recede.
Some economists say we've probably hit a bottom in the housing market, but it's not going to be a straight up recovery from here. Banks are showing a reluctance to close deals on homes in or near foreclosure and real-estate pros say inventory is going to have to go down another 40 percent before home sales start rising.
Oil settled at $68.67 a barrel after reports showed crude supplies were depleted by 3.7 million barrels, nearly three time sto the decline expected, while gasoline stockpiles surged.
Oracle shot up 7 percent after the software giant beat earnings expectations as profit margins hit a record and software sales declined less than expected.
>> Software Sector in Recovery Mode
But Boeing shares dragged on the Dow for a second day, falling another 5.8 percent, following news of yet another delay for its 787 Dreamliner. Morgan Stanley cut its rating on the stock to "equal weight" from "overweight."
JPMorgan Chase lost 0.3 percent despite news that the company was the world's strongest bank in 2008, The Banker magazine reported in its annual list of 1,000 strongest banks globally. The UK's Royal Bank of Scotland was the biggest loser of 2008.
Outside of JPMorgan and a couple of other decliners, bank stocks were mostly higher. Bank of America gained 1 percent and the SPDR financial exchange-traded fund advanced 1.2 percent.
Citigroup rose following news that the bank is going to raise base salaries by as much as 50 percent to offset smaller annual bonuses.
Meanwhile, Morgan Stanley declined after a major union this week called on the company to reverse recent salary hikes for senior executives and other top earners, the Wall Street Journal reported.
Bank of New York Mellon advanced 2 percent amid news that the bank is one of three remaining contenders to buy Citi's Japanese asset management unit.
General Motors skidded 2.6 percent following news that the automaker plansto cut up to 4,000 more white-collar jobs by year end.
Volume was once again thin, with about 1.1 billion shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, roughly 3 to 1.
Still to Come:
THURSDAY: Weekly jobless claims; GDP (final); Earnings from Palm
FRIDAY: Personal income/spending; consumer sentiment; Earnings from KBHome
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