Stock gains fade as Fed warns of market strains

[December 14, 2011]  NEW YORK (AP) -- A late afternoon slide pulled stock indexes lower after the Federal Reserve held off on any new steps to boost the economy. The Fed cautioned that strains in global financial markets still pose a danger, a nod to Europe's debt crisis.

The Dow Jones industrial average fell 66.45 points, or 0.6 percent, to close at 11,954.94. The Dow dropped more than 70 points in the last hour of trading and had risen as high as 126 points earlier Tuesday after two strong auctions of European debt.

The Standard & Poor's 500 index fell 10.74 points, or 0.9 percent, to 1,225.73. The Nasdaq composite fell 32.99 points, or 1.3 percent, to 2,579.27.

The Federal Reserve portrayed the U.S. economy as slightly healthier but cautioned that it remains vulnerable to the European debt crisis. "Strains in global financial markets continue to pose significant downside risks to the economic outlook," the Fed said. Stock indexes turned lower after the Fed released its policy statement at 2:15 p.m.

Stocks had been higher for most of the day after the Spanish government was able to sell short-term debt at much lower interest rates compared with a month ago, a signal that markets are becoming less fearful about the government's ability to repay its debt.

In its first sale of short-term bills, the European Financial Stability Fund raised 1.9 billion euros ($2.6 billion) from investors at an average rate of 0.22 percent. That's below the rate Germany pays for the similar bills. "This is an amazing success," Carl Weinberg, chief economist at High Frequency Economics, wrote in a note to clients.

The Dow sank 162 points Monday when Moody's and Fitch warned that the fiscal agreement reached last week among European leaders fell far short of what was needed to contain that region's debt crisis.

Barring any big news out of Europe, stocks are likely to be stuck in a range for the rest of the week, said Tim Hoyle, director of research at Haverford Investments. Trying to guess which way the market is going to go any day is a "fool's errand," he said.

The Commerce Department reported Tuesday that retail sales rose for the sixth straight month in November. Sales increased just 0.2 percent, below what analysts had expected. But the government also revised the previous month's slightly higher. Hoyle called that the encouraging part. "It reassures you that the economy is going in the right direction," Hoyle said.

Consumer discretionary stocks fell more than the rest of the market. Electronics retailer Best Buy plunged 15 percent. The company said its third-quarter income sank 29 percent as it cut prices on tablets and TVs to drive sales and traffic during the busy holiday season.

Utility stocks, traditionally a play for safety, were the only industry group in the S&P 500 that rose. The group has gained 10 percent this year, far better than any other industry. Financial stocks have fared the worst, 21 percent.

The euro sank 1 percent against the dollar, putting the European currency at its lowest level since January.

The Vix, a measure of stock market volatility, fell to 25 and has dropped 8 percent so far this month. The index remained above 30 from early August until last week. Hoyle said a sustained fall in the Vix usually is followed by a rise in stock prices. The recent trend "sets us up for a little Santa Claus rally between now and the end of the year."

In other corporate news:

• Pfizer Inc. gained 1.8 percent, the most of the 30 companies in the Dow. The drugmaker said it plans to buy back up to $10 billion of its own stock.

• Urban Outfitters jumped 5.3 percent, the most in the S&P 500 index, after the retailer said its sales were rising faster than analysts were expecting. The Philadelphia-based company owns Urban Outfitters stores, Anthropologie and Free People.

• Sprint Nextel Corp. rose less than 1 percent as it looked like its rival AT&T Inc. would be unable to pull off an acquisition of T-Mobile USA. Sprint agreed to drop a lawsuit against AT&T now that the deal appears to be in jeopardy. Sprint had been lobbying to stop it.

[Associated Press; By MATTHEW CRAFT]

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