Wall Street s Fed inspired rally stalls

March 20, 2009
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, NEW YORK, Mar 20 – US stocks retreated on Thursday as market enthusiam faded following a Federal Reserve decision a day earlier to pump another trillion dollars into the financial system to fuel an economic rebound.

The Dow Jones Industrial Average fell 85.78 points (1.15 percent) to end at  7,400.80, following gains in six of the prior seven sessions.

The tech-heavy Nasdaq slipped 7.74 points (0.52 percent) to 1,483.48 and the broad Standard & Poor\’s 500 shed 10.31 points (1.30 percent) to 784.04.

Wall Street had rallied Wednesday and European markets followed with solid gains Thursday after the Fed\’s surprise announcement on buying up to 300 billion dollars in Treasury bonds and an additional 850 billion in other debt in a bid to bring down lending costs and fire up the moribund economy.

But Sara Kline at Economy.com said sentiment soured somewhat as market participants looked at the action as a sign of deeper economic troubles.

"Equity markets surrendered some of the prior day\’s enthusiasm as they digested the details of the Federal Reserve\’s new quantitative easing plans," she said, adding that "gloomy economic news," weighed on market sentiment.

Patrick O\’Hare at Briefing.com said the Fed\’s actions got a positive initial from the stock market but that the move will not be a quick fix for the slumping US economy.

"Lower rates will be a consequence of the Fed\’s actions. It is the potential unintended consequences, though, that create some concern when contemplating the longer-term outlook," he said.

"The Fed runs a heightened risk of inflating the Treasury market bubble and stoking inflation itself. What\’s more is that the Fed has made its job of managing monetary policy that much more difficult when economic evidence suggests we are emerging from the financial crisis and the recession."

On the economic front, reports were weak but close to expectations.

The Labor Department said 646,000 new unemployment claims were filed in the week ending March 14, a decrease from the prior week\’s 658,000, a number revised up by 4,000.

The Conference Board said in its forward-looking index of leading economic indicators fell 0.4 percent after a 0.1 percent rise in January and a 0.1 percent drop in December.

Fred Dickson at DA Davidson said the market is digesting gains of as much as 20 percent from lows hit earlier this month, making it hard for the rally to continue.

"At some point, we wouldn?t be surprised to see the current market enthusiasm quickly turn into pessimism given the continuing flow of bad economic news which most likely will translate into some ugly first-quarter earnings reports," he said.

"We regard this as part of the bottoming process which typically includes periods of sharp market rallies and reversals."

Among stocks in focus, Citigroup reversed course and fell 15.58 percent to 2.60 dollars following news it was planning a reverse stock split and would proceed with its offer to issue common stock in exchange for preferred shares owned by the US government and others.

Elsewhere in the financial sector, Bank of America slid 9.65 percent to 6.93 dollars while JPMorgan Chase shed 7.97 percent to 24.95.

FedEx rose 4.76 percent to 45.10 dollars after the company delivered earnings short of Wall Street forecasts but said it would make new cost cuts.

Business software maker Oracle rallied 9.73 percent to 17.37 dollars after it posted better-than-expected profits and announced its first-ever dividend.

The bond market fell after sizzling gains in the prior session helped by the Fed announcement on buying Treasury bonds.

The yield on the 10-year US Treasury bond rose to 2.597 percent from 2.533 percent, following a hefty half-point decline Wednesday.

The 30-year bond yielded 3.612 percent from 3.572 percent. Bond yields and prices move in opposite directions.

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