Losses cut on Fed plans

NEW YORK -- The stock market had a half-hearted comeback Tuesday after the Federal Reserve announced it would take small steps to stimulate the economy.

The Dow Jones industrial average, down about 100 points before the Fed announced its plans, recovered to a loss of 54. The other major market indexes also bounced back from their lows. But investors were cautious: The Dow was able to briefly show a gain, but fell back again as traders recognized that the Fed's moves would be small and won't cure the economy's problems.

Losing stocks were ahead of advancers on the New York Stock Exchange by nearly 3 to 1. And stocks considered safe bets in a weak economy, including health-care and consumer products companies, were among the gainers.

The Dow fell 54.50, or 0.5 percent, at 10,644.25. The Standard & Poor's 500 index fell 6.73, or 0.6 percent, to 1,121.06. The Nasdaq composite index closed down 28.52, or 1.2 percent, at 2,277.17.

The Fed, in a statement issued after its policy meeting, said it will use money from its investments in mortgage securities to buy government debt on a small scale. That should help send long-term rates on mortgages and corporate debt slightly lower, and the Fed hopes, stimulate lending.

Stock and bond investors looked past the Fed's assessment of the economy that was included in the statement although it was bleaker than the central bank's view of the economy in June. The Fed said, "the pace of economic recovery is likely to be more modest in the near term than had been anticipated."

But the dollar, which is hurt by a weak economy, fell after the Fed's statement was released. The Fed indicated that interest rates will remain at extremely low levels for an extended period. And currencies tend to fall on low rates.

The purchases of debt the Fed plans are known as quantitative easing. Economists estimate that the Fed will have about $10 billion a month to buy the debt. That is a small amount of money compared with the economy's needs.

But Robert Pavlik, chief market strategist at Banyan Partners LLC in New York, said stocks recovered because the Fed's statement "tells the market that the Fed is on top of the situation and if some additional forms of quantitative easing are necessary down the road, it looks like the Fed is ready to act."

Some analysts said the Fed was moving slowly so investors didn't get the sense that the economy is more troubled than they have thought.

"The bottom line is there is only so much the Fed can do and right now it wanted to take baby steps in trying to provide additional liquidity without roiling the markets and scaring investors," said Michael Sheldon, chief market strategist at RDM Financial Group in Westport.

NYSE volume came to a light 980 million shares. Volume has been light all summer because investors don't feel secure about the economy or the market.