NEW YORK – Wall Street took some money off the table Wednesday after its huge rally a day earlier, as investors awaited an afternoon decision on interest rates from the Federal Reserve.
The market expects policymakers to lower the fed funds rate by a half point to 1 percent, though there has been speculation that smaller or wider cuts are possible.
The only certainty is that Wall Street will pore over the Fed's statement on its decision and its reading of the economy. That assessment, along with any move on rates themselves, could lead the market to retreat, rally or simply shrug off a move that it writes off as expected.
Stocks' early decline Wednesday was not surprising given the 889-point gain logged by the Dow Jones industrials Tuesday. The Dow and the Standard & Poor's 500 index posted gains of nearly 11 percent, while the Nasdaq composite index rose 9.5 percent as investors, confident about the prospects for a rate cut, piled into the market to pick up stocks that have become bargains.
The Dow's gain was its second-largest daily point gain; the biggest was its 936-point surge on Oct. 13 that later evaporated as fears about the economy grew. The stock market has been extremely volatile lately — beyond a simple case of investor indecision, the market's back-and-forth moves may also be part of its attempt to establish a bottom.
The Dow fell 75.51, or 0.83 percent, to 8,989.61.
Broader stock indicators also declined. The S&P 500 index fell 9.86, or 1.05 percent, to 930.65, and the Nasdaq composite index fell 20.46, or 1.24 percent, to 1,629.01.
A surprise gain in orders for big-ticket manufactured goods could not maintain Tuesday's upward momentum. The Commerce Department said orders for durable goods — items such as cars, appliances and machinery expected to last at least three years — rose 0.8 percent in September after tumbling 5.5 percent in August. Orders were expected to have fallen by 1.5 percent.
The modest rebound in durable goods was welcome news, but not enough to erase Wall Street's concerns about the weakening economy.
The three major stock indexes are still down more than 30 percent for the year, battered since last month's freeze-up of the credit markets. The troubles with the credit markets have made it harder and more expensive for businesses and consumers to get loans.
Moves by hedge funds and mutual funds to exit positions have added to the market's volatility, analysts say, adding that the market likely won't have a sustained recovery until some big players halt more of their selling.
While signs have emerged that the government action to revive credit markets is starting to work, investors remain skittish over the effects of the prolonged credit freeze on the economy, which relies on lending to feed growth.
Investors are hoping a rate cut by the Fed would complement the government's still-unfolding efforts to aid the commercial paper market, where companies turn for short-term loans, and the banks themselves. The Treasury this week is investing directly in banks, hoping the cash will make them more likely to issue loans.
Meanwhile, investors examined demand for government debt. The yield on the three-month Treasury bill, regarded as the safest investment around and an indicator of investor sentiment, fell to 0.66 percent from 0.74 percent Tuesday. A drop in yield indicates an increase in demand. Meanwhile, the yield on the benchmark 10-year Treasury note fell to 3.81 percent from 3.84 percent late Tuesday.
Light, sweet crude rose $3.39 to $66.12 a barrel in premarket electronic trading on the New York Mercantile Exchange.
Wall Street's rally Tuesday helped lift trading in most markets overseas. Japan's Nikkei stock average jumped 7.74 percent. In afternoon trading, Britain's FTSE 100 rose 5.04 percent, Germany's DAX index fell 1.32 percent, and France's CAC-40 rose 6.89 percent.