Stocks End Lower After Pop Above 9,900

Stocks ended lower Wednesday as the rally after the Federal Reserve's statement faded and investors began to worry that the central bank is inching closer to withdrawing stimulus measures that have propped up the economy.

The Dow Jones Industrial Average shed 81.32, or 0.8 percent, to close at 9,748.55, after briefly passing the 9,900 mark for the first time since last fall. The S&P 500 lost 1 percent and Nasdaq dropped 0.7 percent.

The initial read on the Fed statement was positive: Policy makers said economic activity has "picked up"— an improvement from the "leveling out" language from its last statement — and conditions in the financial markets have improved. They also said housing activity has increased and household spending is stabilizing.

But the Fed also said that it was slowing its purchases of mortgage debtin order to extend the program through the end of March and smooth the transition in the markets, a statement that may have rattled some cages in the market. Investors worry about whether the economy will survive without the Fed support and realize that moment of truth is drawing near.

Bank stocks did an about-face amid the concerns about Fed stimulus.

Bank of America and Citigroup had been up for much of the day but ended lower, along with the rest of the sector. JPMorgan was the biggest decliner on the Dow, falling 3 percent.

Housing and energy stocks also took a hit: Beazer Homes ended down more than 9 percent.

Cisco was among the biggest drags on the Nasdaq and the Dow after CEO John Chambers said the U.S. is coming out of recession but it wasn't a full-blown recovery.

"It looks like a gradual recovery," Chambers told the Wall Street Journal, adding that there's a risk the economy could still slip backward. He also declined to give a read on the networking-gear maker's current quarter.

This morning, the dollar fell to a fresh one-year low against the euro and other currencies but ended higher after the Fed statement.

Meanwhile, the Treasury auctioned $40 billion of five-year notes that fetched a yield of 2.47 percent. Demand was weak, with a bid-to-cover ratio of 2.40, This came after strong demand for the two-year auction on Tuesday. The seven-year auction is tomorrow.

Ford shares jumped 5 percent after the automaker offered an upbeat outlook: CEO Alan Mulally said the auto industry is recovering and he expects sales to rise over the next two years. The U.S. market is "looking good," Mulally said, but added that the company is looking to Asia to juice sales.

Also on the positive side, mortgage applications jumped 12.8 percentlast week to their highest level since late May. Interest in home-buying increased as mortgage rates fell below 5 percent.

On the earnings front, General Millsbeat earnings expectations, helped by strong sales in the U.S. and lower commodity costs, and raised its full-year forecast. Its shares advanced 4.8 percent.

AutoZone shares fell 7.8 percent after the auto-parts chain missed its earnings targetamid a calendar shift and as customers shifted toward lower-margin products.

Seagate Technology lost 1.3 percent despite an upgrade to "buy" from Deutsche Bank, which expects the computer-disk maker to benefit from increased demand and higher margins.

Palm shares skidded 0.6 percent. The smartphone maker said it expects to raise $313.1 million from a sale of shares at $16.25 each, a 5 percent discount to Tuesday's closing price. Palm shares had been up about 15 percent over the past several days amid talks of a possible takeover bid as traders scurried to cover short positions.

Microsoft shares also slipped. The software giant is reportedly developing a tablet-style PC, according to widely followed technology blog Gizmodo.

Life insurers finished mostly lower after a downgrade from Morgan Stanley to "in line" from "attractive." Prudential Financial was among the individual stocks also downgraded.

AMR skidded nearly 8 percent after the parent of American Airlines sold $250 million in convertible senior notes due in 2014.

Volume was moderate, with 1.32 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 9 to 5.

Still to come:

THURSDAY: G-20 summit begins; weekly jobless claims; existing-home sales; seven-year auction; Earnings from RIM
FRIDAY: Durable-goods orders; consumer sentiment; new-home sales; Earnings from KB Home

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