U.S. stocks fall, bonds rally as Fed stands pat

Thu Sep 17, 2015 5:01pm EDT
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By Richard Leong

NEW YORK (Reuters) - U.S. blue-chip stocks fell in volatile trading on Thursday while bond prices jumped after the Federal Reserve decided to hold U.S. interest rates near zero on concerns about global weakness but left the door open for a rate increase later this year.

The dollar posted its biggest one-day loss in a month against a basket of currencies as the U.S. central bank refrained after a two-day policy meeting from further spooking investors already fretting about China's slowing economy hurting the rest of the world.

"Given the global headwinds, the last thing we need right now was a hike in rates and any kind of hawkish projections," said Brian Dolan, head market strategist at DriveWealth in Chatham, New Jersey.

A weaker greenback briefly lifted oil futures but they quickly turned negative on renewed worries about global demand.

The Dow Jones industrial average .DJI ended down 65.21 points, or 0.39 percent, to 16,674.74, the S&P 500 .SPX closed 5.11 points, or 0.26 percent, lower at 1,990.2 and the Nasdaq Composite .IXIC finished down 4.71 points, or 0.1 percent, to 4,893.95.

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said in its policy statement after the meeting. It added the risks to the U.S. economy remained nearly balanced but that it was "monitoring developments abroad."

The Fed dialled back its outlook on how fast it would raise rates after its first hike, while some analysts interpreted Chair Janet Yellen's remarks at her press conference following the meeting that she was not strongly committed to hiking rates by year-end.

"There's nothing she said at all that was hawkish. The downside is still their (the Fed's) worry," said Aaron Kohli, interest rate strategist at BMO Capital Markets in New York.   Continued...

Traders work on the floor of the New York Stock Exchange September 17, 2015. REUTERS/Brendan McDermid