NEW YORK (Reuters) - The Dow and S&P 500 inched higher, while the Nasdaq dipped on Wednesday after Federal Reserve officials said they were still worried about labor market weakness and a report on the services sector showed only slight improvement in the economy.
Cautious minutes from the Fed's last meeting, as well as the ISM services report, which showed the sector hovering on the cusp of expansion, came after a number of data points helped lift stocks earlier this week to their highest closing levels in more than a year.
The private-sector ADP jobs report, which showed that private-sector job losses slowed in December from November's pace, gave investors further pause for thought before Friday's key non-farm payrolls number.
"The big party is Friday morning," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco. Today's "data points were mixed. I think that they are not that meaningful, and I think that the most important data point we will get will be Friday morning."
Even with Wednesday's tiny gain, the S&P 500 eked out a new 15-month high.
The Dow Jones industrial average .DJI rose 1.66 points, or 0.02 percent, to end at 10,573.68. The Standard & Poor's 500 Index .SPX inched up just 0.62 of a point, or 0.05 percent, to finish at 1,137.14. But the Nasdaq Composite Index .IXIC dropped 7.62 points, or 0.33 percent, to 2,301.09.
One bright spot was Family Dollar Stores Inc (FDO.N), up 12.5 percent at $30.92, after the retailer reported first-quarter earnings that beat expectations. Rival 99 Cents Only Stores (NDN.N) climbed 5 percent to $14.02.
The Nasdaq was pushed lower by losses in big-cap technology issues, including Apple Inc (AAPL.O), down 1.6 percent at $210.97, and Microsoft Corp (MSFT.O), down 0.6 percent at $30.77.
Weighing on the Dow was Travelers Cos Inc (TRV.N), down 1.4 percent at $47.94 after FBR cut its rating on the insurer to "market perform" from "outperform."
DJ TRANSPORTS DIVE AS OIL JUMPS
Another obstacle for stocks was the surge in the price of oil to above $83 a barrel, which pushed the Dow Jones Transportation Average .DJT down 0.6 percent. Energy-hungry package-shipping companies like FedEx Corp (FDX.N), down 0.8 percent at $83.84, and UPS (UPS.N), down 0.7 percent at $57.85, make up the Dow Jones Transportation Average.
U.S. February crude oil climbed $1.41, or 1.7 percent, to settle at $83.18 a barrel, the highest close since October 9, 2008, on expectations that cold weather in the United States will increase demand for heating oil.
Diversified manufacturer 3M Co (MMM.N) rose 1.5 percent to $83.72, supporting the blue-chip Dow average after Goldman Sachs added the stock to its Americas "conviction buy" list and said stronger-than-expected results in October and November likely continued in December.
In contrast, Walgreen Co (WAG.N) shed 0.8 percent to $36.72 after the drugstore chain said same-store sales fell in December instead of rising, as Wall Street had expected.
But Dow Chemical Co (DOW.N) jumped 1.8 percent to $31.02 after Barclays Capital upgraded the stock to "overweight" from "equal-weight."
On the economic front, the Institute for Supply Management non-manufacturing index rose to 50.1 in December, showing slight expansion, but was slightly below the 50.5 forecast by economists.
Earlier Wednesday, the ADP Employer Services report showed U.S. private employers shed 84,000 jobs in December, less than a revised 145,000 in November, but exceeding economists' forecast for a loss of 73,000 jobs.
Volume was light on the New York Stock Exchange, with 1.11 billion shares changing hands, below last year's estimated daily average of 2.18 billion. On the Nasdaq, about 2.28 billion shares traded.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of 3 to 2.
But on the Nasdaq, the opposite trend held sway, with about five stocks falling for every four that rose.
by reuters
ANM World Wide
Earth
Kamis, 07 Januari 2010
Fed Worried About Housing Recovery at December Meeting
Some U.S. Federal Reserve officials worried last month that waning government support could snuff out a fragile housing market recovery and a few believed it might be desirable to step up asset purchases.
CNBC.com
"Some participants...noted the risk that improvements in the housing sector might be undercut next year as the Federal Reserve's purchases of (mortgage-backed securities) wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue," minutes of the Fed's Dec. 15-16 policy-setting meeting said.
Labor market weakness remained an important concern for Fed officials, the minutes released on Wednesday showed, with officials saying they expect unemployment to remain high for "quite some time." Views about policy differed.
Some officials said persistently high unemployment might make it desirable at some point to expand or extend large-scale purchases of assets.
However, one policy-maker said improvements in financial markets and in the economy may warrant scaling back the Fed's purchases and reducing holdings over time.
Fed officials said that in general, the outlook for housing was for gains in activity to continue, although some participants viewed the improvements as "quite tentative." Mortgage markets could come under pressure when the MBS purchases wind down, some officials worried.
The Fed has committed to buying $1.25 trillion of mortgage-backed securities by the end of March.
The Fed began buying MBS, mortgage agency debt and longer-term Treasury securities after it had cut rates to near zero in December 2008 but wanted to continue to provide a boost to the economy.
A $300 billion program to purchase longer-date Treasuries ended in October.
At the Dec. 15-16 meeting, the Fed decided to continue keeping interest rates low for an "extended period" to keep the economic recovery going and drive down double-digit unemployment.
But in a more upbeat assessment, the Fed said the economy had "continued to pick up" and that "deterioration in the labor market is abating," a nod to the recent slowdown in the pace of layoffs.
Meanwhile, a Fed economist said Wednesday that the central bank's extraordinary support for the financial system suggests it will have less margin for error to stave off inflation as recovery gathers steam.
The Fed has more than doubled the size of its balance sheet to around $2 trillion, worrying some economists that inflation will result once the economy recovers.
Some of the Fed's special lending facilities are winding down on their own as financial conditions improve, St Louis Fed economist Kevin Kliesen wrote in the regional central bank's quarterly review of business and economic conditions.
"Still this process will not be sufficient to prevent a potentially destabilizing surge in money growth, which means that Fed policymakers will have to adopt other, more aggressive strategies," Kliesen wrote.
Fed officials have said options include paying interest on excess reserves and selling some assets on its balance sheet.
"Regardless of the method used, an improving economy means that the Fed must be prepared to raise its interest rate target to prevent an unwanted expansion in money growth by the banking sector," Kliesen wrote.
Fed Chairman Ben Bernanke and other policy-makers are "quite confident" that they have the tools and determination needed to prevent an unwelcome acceleration in inflation and inflation expectations, Kliesen wrote.
RELATED LINKS
Current DateTime: 11:35:17 06 Jan 2010
LinksList Documentid: 34730275
* See the Fed Minutes Here
* Will Fed See the Next Bubble?
* Service Sector Grows Slightly
* Jobs Growth in December?
* Will Jobs Bill Help?
* Career Check For 2010
* More Economic News
"Unlike previous episodes, though, the magnitude of the policy responses to the financial crisis and the Great Recession suggests that the FOMC's margin of error seems much smaller than at any time in the Fed's history," he wrote.
Kliesen noted there is a "considerable amount" of disagreement among economists about the outlook for inflation over the next couple of years.
Some place more emphasis on high unemployment putting a damper on inflation while others believe the risks of higher inflation have increased due to large budget deficits and the Fed's asset purchase programs.
Kliesen suggested disagreement on the inflation outlook could provide some insight into what lies ahead, noting that past five-year forecasts of the average Consumer Price Index inflation rate from Blue Chip Economic Indicators show that when inflation was relatively high and variable, such as the late 1980s and early 1990s, there was sizable disagreement among forecasters about the medium-term inflation outlook.
"By contrast, during periods when inflation tends to be relatively low and stable, such as the mid-1990s to mid-2000s, forecasters tend to disagree less about the... outlook."
by reuters and cnbc.com
CNBC.com
"Some participants...noted the risk that improvements in the housing sector might be undercut next year as the Federal Reserve's purchases of (mortgage-backed securities) wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue," minutes of the Fed's Dec. 15-16 policy-setting meeting said.
Labor market weakness remained an important concern for Fed officials, the minutes released on Wednesday showed, with officials saying they expect unemployment to remain high for "quite some time." Views about policy differed.
Some officials said persistently high unemployment might make it desirable at some point to expand or extend large-scale purchases of assets.
However, one policy-maker said improvements in financial markets and in the economy may warrant scaling back the Fed's purchases and reducing holdings over time.
Fed officials said that in general, the outlook for housing was for gains in activity to continue, although some participants viewed the improvements as "quite tentative." Mortgage markets could come under pressure when the MBS purchases wind down, some officials worried.
The Fed has committed to buying $1.25 trillion of mortgage-backed securities by the end of March.
The Fed began buying MBS, mortgage agency debt and longer-term Treasury securities after it had cut rates to near zero in December 2008 but wanted to continue to provide a boost to the economy.
A $300 billion program to purchase longer-date Treasuries ended in October.
At the Dec. 15-16 meeting, the Fed decided to continue keeping interest rates low for an "extended period" to keep the economic recovery going and drive down double-digit unemployment.
But in a more upbeat assessment, the Fed said the economy had "continued to pick up" and that "deterioration in the labor market is abating," a nod to the recent slowdown in the pace of layoffs.
Meanwhile, a Fed economist said Wednesday that the central bank's extraordinary support for the financial system suggests it will have less margin for error to stave off inflation as recovery gathers steam.
The Fed has more than doubled the size of its balance sheet to around $2 trillion, worrying some economists that inflation will result once the economy recovers.
Some of the Fed's special lending facilities are winding down on their own as financial conditions improve, St Louis Fed economist Kevin Kliesen wrote in the regional central bank's quarterly review of business and economic conditions.
"Still this process will not be sufficient to prevent a potentially destabilizing surge in money growth, which means that Fed policymakers will have to adopt other, more aggressive strategies," Kliesen wrote.
Fed officials have said options include paying interest on excess reserves and selling some assets on its balance sheet.
"Regardless of the method used, an improving economy means that the Fed must be prepared to raise its interest rate target to prevent an unwanted expansion in money growth by the banking sector," Kliesen wrote.
Fed Chairman Ben Bernanke and other policy-makers are "quite confident" that they have the tools and determination needed to prevent an unwelcome acceleration in inflation and inflation expectations, Kliesen wrote.
RELATED LINKS
Current DateTime: 11:35:17 06 Jan 2010
LinksList Documentid: 34730275
* See the Fed Minutes Here
* Will Fed See the Next Bubble?
* Service Sector Grows Slightly
* Jobs Growth in December?
* Will Jobs Bill Help?
* Career Check For 2010
* More Economic News
"Unlike previous episodes, though, the magnitude of the policy responses to the financial crisis and the Great Recession suggests that the FOMC's margin of error seems much smaller than at any time in the Fed's history," he wrote.
Kliesen noted there is a "considerable amount" of disagreement among economists about the outlook for inflation over the next couple of years.
Some place more emphasis on high unemployment putting a damper on inflation while others believe the risks of higher inflation have increased due to large budget deficits and the Fed's asset purchase programs.
Kliesen suggested disagreement on the inflation outlook could provide some insight into what lies ahead, noting that past five-year forecasts of the average Consumer Price Index inflation rate from Blue Chip Economic Indicators show that when inflation was relatively high and variable, such as the late 1980s and early 1990s, there was sizable disagreement among forecasters about the medium-term inflation outlook.
"By contrast, during periods when inflation tends to be relatively low and stable, such as the mid-1990s to mid-2000s, forecasters tend to disagree less about the... outlook."
by reuters and cnbc.com
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