Wall Street regains some ground after Fed remarks

Wall Street edged lower on Tuesday but recouped some ground after the Federal Reserve said it would buy five- and 10-year Treasuries to try to support the fragile economic recovery.

At the close, the Dow Jones industrial average fell 54 points, or 0.51%, to 10,644. The broader Standard & Poor’s 500-stock index declined seven points, or 0.6%, to 1,121, and the broader Nasdaq was down 28 points, or 1.24% to 2,277.

Before the Fed policy-making committee’s statement, the markets dipped by more than 100 points on concern that the US central bank might follow the Bank of Japan and keep monetary policy unchanged. Investors were also worried by a report that showed an unexpected decline in US non-farm productivity, the first decline since the end of 2008, with companies finding it difficult to keep slashing costs even though labour costs barely edged up.

Weaker-than-expected import data from China also weighed on sentiment, pushing materials stocks down. Alcoa dropped 2.7%, while both Freeport-McMoRan Copper & Gold and Cliffs Natural Resources sank 2%.

Fed acknowledged that the recovery was sluggish and said that it would use the proceeds from its huge mortgage-bond portfolio to purchase long-term Treasury securities. As expected, it left benchmark overnight interest rates steady in a zero to 0.25% range.

In earnings news, MBIA surged 4.5% after it registered a 45% jump in earnings in the second quarter. Software manufacturer Novell plunged 3.2% after it cut its third- quarter revenue outlook. Best Buy, the electricals retailer, fell 2.8% after Goldman Sachs cut its rating from “buy” to “neutral”.

In London, the FTSE 100 index fell 34 points, or 0.63%, after data showed home prices dipped for the first time in a year in July. The DAX in Frankfurt was down 65 points, or 1.1%.

In Asia, The BoJ’s standstill decision weighed on the FTSE Asia-Pacific index pushing it down 1%.

But the Shanghai Composite index led declines by tumbling 2.9% after a big disappointment when China’s imports were reported to have increased by only 22.7% last month, well behind the 53% growth in June. Hong Kong’s Hang Seng index was down 1.5%.

The Nikkei 225 Average slipped 0.2% as the country’s central bank refrained from measures to expand liquidity, leaving interest rates unchanged.