Stocks fall despite better Fed view

NEW YORK - Investors were encouraged by the Federal Reserve's latest improved assessment of the economy, but not enough to propel the Dow Jones industrial average past 10,000.

Stocks closed lower yesterday as a brief rally followed the Fed's economic statement and then faded. The Dow came within 82 points of crossing 10,000 for the first time since October, but ended the day with a loss of 81.

Stocks often trade erratically on days when the Fed meets to discuss interest rates as investors pore over the statement accompanying the decision for clues about the economy and what the central bank's next steps might be.

There were no surprises from the Fed meeting. The central bank's governors said the pace of economic activity had "picked up" since their meeting in August, and they said they would keep short-term interest rates at historically low levels near zero "for an extended period."

The Fed's decision on rates and its gently upgraded view of the economy were in line with what investors anticipated but did not give the market enough reason to push higher.

"The market got exactly what it was expecting," said Thomas Wilson, managing director of the institutional investments and private client group at Brinker Capital Securities Inc., of Berwyn, Pa.

With major market indicators up more than 50 percent from their lows in early March, many market watchers are worried that stocks have become overvalued, especially with the strength of the economy's recovery still in question. Investors nevertheless continue to buy stocks for fear of missing out on an extended rally.

The Dow fell 81.32, or 0.83 percent, to 9,748.55. The Standard & Poor's 500 fell 10.79, or 1.01 percent, to 1,060.87, while the Nasdaq composite fell 14.88, or 0.69 percent, to to 2,131.42.

Another drop in oil prices weighed heavily on energy and industrial shares. The price of crude for November delivery tumbled nearly 4 percent, or $2.79, to settle at $68.97 a barrel on the New York Mercantile Exchange. The decline in energy prices accelerated during the day after the government reported that supplies of crude, gasoline, and distillate fuel surged above expectations.

In corporate news, a surprisingly strong earnings report helped lift shares of General Mills Inc. The maker of Cheerios and Yoplait yogurt said its profit jumped 51 percent on lower ingredient costs and solid demand for its products. The food-maker also increased its full-year outlook. Shares soared $2.83, or 4.64 percent, to $63.80.

Bond prices rebounded after the Fed alleviated worries about inflation and said it would keep its short-term interest rate near zero. Treasuries recouped their losses from earlier in the day, which came after somewhat disappointing demand for the latest auction of five-year notes.

In other trading, the Russell 2000 index of smaller companies fell 7.32, or 1.18 percent, to 613.37.

Overseas, European indexes reversed early gains and finished slightly lower. Britain's FTSE 100, Germany's DAX index, and France's CAC-40 all fell 0.1 percent.