Stocks End Flat Following Fed Comments

Stocks finished flat Thursday after the Federal Reserve said the economy appeared to be growing at a "moderate" pace but offered a cautious reading on inflation.

The Dow Jones industrial average, which at one point had been up 70 points after the Fed decision, ended down 5.45, or 0.04 percent, at 13,422.28.

Broader stock indicators finished mixed. The Standard & Poor's 500 index slipped 0.63, or 0.04 percent, to 1,505.71, and the Nasdaq composite index rose 3.02, or 0.12 percent, to 2,608.37.

The central bank, which stood pat on short-term interest rates as had been widely expected, offered investors a relatively unchanged assessment of the economy, saying its primary concern remains the risk that inflation will fail to moderate.

Stocks bounced around as investors tried to interpret the Fed's comment that recent readings on inflation excluding energy and food prices showed some improvement but no pronounced signals of easing.

"They took a middle-of-the-road approach. The Fed said some encouraging things about the future growth rate of the economy," said John Miller, head of fund management for Nuveen Asset Management. "They could have been more negative or more concerned about the meltdown in subprime markets or the potential for housing weakness to spread into consumer spending. The changes in the statement didn't indicate any concerns about those recent events."

He contends, however, that the Fed, which left rates unchanged at 5.25 percent as it has for the past year, was careful to remain guarded about inflation.

"It's a little bit of a hawkish message because they're saying they're not really convinced inflation is decreasing in any meaningful way," he said.

Bonds fell after the Fed comments, with the yield on the benchmark 10-year Treasury note rising to 5.11 percent from 5.08 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.

The modest moves in stocks Thursday follow a rally by all three major indexes in the previous session. Stocks have been turbulent during the past few weeks because of soaring bond yields and concern about the broader effect of faltering subprime loans.

The Fed's comments on so-called core inflation, which excludes often volatile food and energy prices, came as some investors had expected the bank would switch its focus to overall inflation, said Marc Pado, U.S. market strategist at Cantor Fitzgerald. Some inflation readings have been rising because of spikes in energy and food costs. While the Fed often focuses on the core level, Pado noted the overall inflation figure affects the economy because rising prices for gas and food can cut into consumer spending.

Wall Street's focus on the Fed's comments left little room for attention elsewhere; investors appeared unfazed as oil prices spiked above $70 per barrel on the New York Mercantile Exchange for the first time since August, then fell back.

Oil prices began moving up Wednesday after a government report showed an unexpected drop in gasoline inventories. Light, sweet crude rose 60 cents to close at $69.57 on Thursday.

In corporate news, shares of General Motors Corp. (GM), one of the 30 stocks that make up the Dow industrials, rose to a two-year high after agreeing to sell its Allison Transmission commercial and military business to an investment conglomerate and a private equity firm. The stock was the best performer in the Dow, rising 74 cents, or 2 percent, to $38.15.

Dillard's Inc. (DDS) rose $2.76, or 8.1 percent, to $36.69 after an investment group representing minority shareholders said it plans to press the department store chain to boost profits.

Digital River fell $5.67, or 11.2 percent, to $45 after the e-commerce outsourcing company cut its second-quarter and full-year forecasts.

Bed Bath & Beyond Inc. (BBBY) fell $1.47, or 3.9 percent, to $36.09 after the home goods chain lowered its full-year profit target, citing uncertain economic trends.

Novellus Systems Inc. (NVLS), a semiconductor equipment maker, fell $1.01, or 3.4 percent, to $28.89 after warning its second-quarter results would come in at the low end of its forecast amid weakness in the chip market.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 1.49 billion shares compared with 1.76 billion traded Wednesday.

The Russell 2000 index of smaller companies rose 0.57, or 0.07 percent, to 839.03.

Overseas, Japan's Nikkei stock average rose 0.46 percent. Britain's FTSE 100 rose closed up 0.67 percent, Germany's DAX index rose 1.54 percent, and France's CAC-40 rose 1.09 percent. [via]