Stocks plunge despite the Fed's 'twist'

Updated: 8:29 p.m. ET

The Federal Reserve decided today to try once more to give an ailing economy a boost. But stocks fell the most in two weeks, in part because Wall Street wanted the Fed to be more aggressive in the face of a weak economy.

While the Federal Open Market Committee left the target for its key interests at record low levels, it did agree to sell $400 billion in shorter-term Treasury securities in its $1.65 trillion portfolio and buy $400 billion in longer-term Treasurys. The goal of what's been called "Operation Twist" is to keep longer-term rate low in hopes that the economy responds positively.

The FOMC noted the continued weakness in the domestic economy. Unemployment remains stubbornly high, and housing is a disaster. And, the Fed said, "There are significant downside risks to the economic outlook, including strains in global financial markets."

Technology shares had been on a roll before the announcement because of strong earnings for Oracle (ORCL) and Adobe Systems (ADBE) and an eruption of new turmoil at Hewlett-Packard (HPQ). Reports said the company's board may oust CEO Leo Apotheker after just 11 months. Investors have been deeply skeptical of Apotheker's decision to junk HP's hardware business in favor of software services. The stock closed up 6.7% to $23.98 but is down 50% since mid-February.

The Dow Jones industrials ($INDU) closed down 284 points, or 2.5%, to 11,125. The Standard & Poor's 500 Index ($INX) was off 35 points, or 2.9%, to 1,167. The Nasdaq Composite Index ($COMPX), however, was off 52 points, or 2%, to 2,538, and the Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, was down 38 points, or 1.6%, to2,258.

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Because of the weak economy, the Fed had already pledged to keep interest rates low until at least mid-2013. But Chairman Ben Bernanke and others on the FOMC believe the Fed is obliged to do more because it has a mandate to promote growth and keep inflation at bay.

That conclusion isn't unanimous. Three members of the FOMC voted against the decision: Richard Fisher, Narayana Kocherlakota and Charles Plosser, presidents of Federal Reserve banks in Dallas, Minneapolis and Philadelphia, respectively. They did not believe the Fed should do anything. They also opposed the Fed's pledge in August to keep rates low until mid-2013.

Inflationary pressures have eased considerably in the last few months. The price of gasoline is down 10% since peaking in early May. The 10-year Treasury yield finished at 1.875%, down from 1.947% on Tuesday and 3.3% at the end of 2010.

But critics of two rounds of two rounds of so-called Quantitative Easing have charged that all the Fed really did was send commodity and stock prices higher. In its Quantitative Easing programs, the Fed bought Treasury securities to add cash to the economy.

Worst losses in at least two weeks
The market was broadly lower, with the Dow and Nasdaq suffering their worst losses since Sept. 9. The S&P 500's loss was its worst since Aug. 18. Futures trading suggests a flat open on Thursday. It's not clear if the failure of a routine House vote to continue to fund government operations past Sept. 30 will affect markets.

On the plus side: United Technologies (UTX) has agreed to buy aircraft-landing-par​ts maker Goodrich (GR) for $16.4 billion in cash, The Wall Street Journal said this evening. Goodrich shares were up 11% after hours to $122.

Technology shares were the market's strongest sector, relatively speaking. The Technology Select Sector SPDR (XLK) exchanged traded fund, down 1.5% to $24.49, had the smallest decline of the ETFs that track the 10 sectors of the S&P 500.

Energy prices -- New York close
			Wed.			Tues.			Month chg.			YTD chg.
Crude oil (-CL)			$85.92			$86.92			-3.25%			-5.98%
(per barrel)
Heating oil (-HO)			$2.9342			$2.9616			-4.86%			15.35%
(per gallon)
Natural gas (-NG)			$3.7300			$3.7980			-7.99%			-15.32%
(per mil. BTU)
Unleaded gasoline (-RB)			$2.6665			$2.7014			-7.29%			8.69%
(per gallon)
Brent crude			$110.36			$110.54			-3.91%			16.47%
(per barrel)
Retail gasoline			$3.5700			$3.5800			-1.30%			16.21%
(per gallon; AAA)

Apple seen introducing iPhone 5 in October
Apple (AAPL) closed down 0.3% to $412.14. It rallied in the morning on reports that CEO Tim Cook will introduce the iPhone 4 on Oct. 4.

Oracle shares were up 4.2% to $29.61, after the database software maker reported better-than-expected​ first-quarter results with earnings of 48 cents a share on sales of $8.43 billion. The shares were up as much as 9.2% in the morning. Adobe closed up 1% to $24.89 after offering stronger-than-expect​ed guidance.

But Microsoft (MSFT) was off 3.8% to $25.98 despite raising its dividend 25% to 20 cents a share. Many shareholders wanted a bigger dividend. (Microsoft is the publisher of MSN Money.)

Financial, materials and energy stocks were the weakest market sectors.

Shares of iron producer Rio Tinto (RIO)  were down 6.3% to $51.29 in New York, after warning that customers are delaying shipments of iron and copper ores, marking a sharp contrast from the industry's bullish outlook only six weeks ago.

Separately, shares of Bank of America (BAC) were down 7.5% to $6.38 after the company was downgraded by Moody's to Baa1 from A2. The move comes from a decrease in the probability the government would support the bank, if necessary, but "do not reflect a weakening of the intrinsic credit quality" of the company.

Moody's also downgraded Wells Fargo (WFC) from A1 to A2 for the same reason. Wells Fargo shares were off 3.9% to $23.71.

Gold drifts lower, oil moves up
Gold (-GC) settled down $1 to $1,808.10 but was trading around $1,793 an ounce in electronic trading. Silver (-SI) settled up 33 cents to $40.47, and copper (-HG) was up 3.9 cents to $3.764 a pound.

Crude oil (-CL) settled down $1 to $85.92. While an Energy Department report said domestic inventories of crude were lower than expected, the price dropped because of the Fed's gloomy description of the economy.

The dollar was higher against major currencies, particularly the euro and the British pound. The gain helped push U.S. interest rates lower.

Coal shares stumble
Coal producer Alpha Natural Resources (ANR) fell 17.2% to $22.30. The coal producer cut its 2011 shipment forecast to 103 to 110 million tons from a range of 104 to 112 million tons. The company said it reduced shipments to Asia and had lower production from some of its mines.

Other coal producers fell in sympathy. So did railroad stocks, which transport most of the nation's coal. Norfolk Southern (NSC) was off 8.3% to $61.93. CSX (CSX) was down 8.1% to $18.59. The Dow Jones Transportation Average ($DJT) was down 238 points, or 5.3% to 4,281 and is off 22.4% since the market peaked for this year on April 29.

Investors snapping up foreclosures boost existing-home sales
Existing-home sales rose in August. But sales were driven by an increase in foreclosures and purchases by investors, a sign that home prices could fall further next year and slow a housing recovery.

The National Association of Realtors said today that home sales rose 7.7% to a seasonally adjusted annual rate of 5.03 million homes. That's below the 6 million that economists say is consistent with a healthy housing market.

Last month's pace was slightly ahead of the 4.91 million sold in 2010, the worst sales level in 13 years.

Activity among first-time buyers, critical to reviving the housing market, didn't budge. First-time buyers made up only 32% of sales, matching the July level. They normally make up 50% of home sales in healthy markets.

Home sales have fallen in four of the past five years.

Leaders and laggards
Orexigen Therapeutics (OREX) is restarting development of its rejected obesity drug Contrave after regulators agreed to allow the company to conduct a potentially shorter follow-up clinical trial. Shares rose 49% to $2.19.
 
SABMiller (SBMRY), the world's second-largest brewer, agreed to buy Australia's biggest brewer, Foster's, for $9.9 billion (Australian), or $10.2 billion. The offer of $5.10 a share for Foster's represents a 2.8% increase from SABMiller's initial bid for the company in June. SAB Miller, parent of Miller Brewing in the United States, was off 4.8% to $33.53 in New York.

Boeing (BA) is in "very advanced discussions" with Chinese airlines to revitalize sales of its 787 Dreamliner, according to The Wall Street Journal. Boeing shares fell 4% to $61.02.

Short hits from the markets -- New York close
			Wed.			Tues.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.0100%			0.010%			0.00%			-91.67%
5-year Treasury note			0.856%			0.845%			-10.08%			-57.54%
10-year Treasury note			1.875%			1.947%			-15.46%			-43.27%
30-year Treasury bond			3.039%			3.211%			-15.40%			-30.33%
Currencies
U.S. Dollar Index			77.859			77.528			4.97%			-1.80%
British pound			1.5569			1.5748			-4.20%			-0.23%
(in U.S. $)
U.S. $ in pounds			£0.642			£0.635			4.39%			0.23%
Euro in dollars			$1.37			$1.37			-4.99%			2.10%
(in U.S. $)
U.S. $ in euros			€ 0.732			€ 0.730			5.25%			-2.06%
U.S. $ in yen			76.80			76.43			0.08%			-5.61%
U.S. $ in Chinese			6.40			6.38			0.04%			-3.21%
yuan
Canada dollar			$0.998			$1.008			-2.39%			-0.59%
(in U.S. $)
U.S. dollar			$1.003			$0.993			2.45%			0.59%
(in Canadian $)
Commodities
Gold (-GC)			$1,808.10			$1,809.10			-1.29%			27.21%
(per troy ounce)
Copper (-HG)			$3.764			$3.726			-10.48%			-15.36%
(per pound)
Silver (-SI)			$40.4690			$40.1370			-3.11%			30.81%
(per troy ounce)
Wheat (-ZW)			$6.6675			$6.7475			-15.76%			-16.05%
(per bushel)
Corn (-ZC)			$6.8575			6.9025			-11.03%			10.16%
(per bushel)
Cotton			$1.0283			1.0541			-2.82%			-28.99%
(per pound)
Coffee			$2.5195			2.602			-12.59%			4.76%
(per pound)
Crude oil (-CL)			$85.92			$86.92			-3.25%			-5.98%
(per barrel)