Stocks finished mixed on Tuesday after a dim profit forecast from Merck (MRK ) dampened positive sentiment sparked by the U.S. Federal Reserve's decistion to cut interest rates by 25 basis points. The cut was widely anticipated by the markets.
The action by the Federal Open Market Committee, the Fed's policy-setting arm, marks the eleventh time this year they've slashed rates to help boost the lagging economy. In theory, corporations are encouraged to do more business as lending rates fall.
The benchmark federal funds target rate charged on overnight loans between banks now stands at 1.75% -- its lowest level since 1961. The Fed's Board of Governors approved a 25 basis point reduction in the largely symbolic discount rate to 1.25%.
The Fed also maintained its easing bias and left the door open for more rate cuts. "Economic activity remains soft, with underlying inflation likely to edge lower from relatively modest levels. To be sure, weakness in demand shows signs of abating, but those signs are preliminary and tentative," the Fed said in a prepared statement.
But market observers stressed the Fed is winding down on its aggressive rate-cutting streak. "We're in the advanced stage of easing. It could be January when we're even closer to the end, or at the end," says A.C. Moore, chief investment strategist at Dunvegan Associates in Santa Barbara, Calif.
In addition to the Fed announcement, investors mulled some corporate news. Mobile phone maker Nokia (NOK ) said it may top its quarterly earnings target, which contributed to positive Street sentiment. Shares of Nokia gained more than 1%.
The markets gained ground immediately after the Fed decision, but the major indices eventually gave up previous gains. The Dow Jones industrial average fell 33.10 points, or 0.33%, to 9,888.37, dragged by the 9% slump in Merck.
The tech-heavy Nasdaq composite index added 9.82 points, or 0.49%, to 2,001.94, benefiting from gains in chip stocks including Intel (INTC ). The broader S&P 500 index slipped 3.17 points, or 0.28%, to 1,136.76
U.S Treasuries ended higher after the Fed's rate cut.
In other economic news, U.S. wholesalers cut their inventories in October at the fastest pace since at least 1992 as they faced plunging sales in a recession-hit economy, a government report on Tuesday showed, according to news reports. The Commerce Department said stocks of unsold goods on wholesalers' shelves fell 1% to $294.21 billion, the biggest monthly decline since the current system of record-keeping began in 1992. In September, inventories fell 0.4% to $297.16 billion.
European markets ended mixed, as many indexes awaited the U.S. Fed decision. In London, the Financial Times-Stock Exchange 100 index was down 24.20 points, or 0.47%, to 5,160.80. In France, the CAC 40 was off 4.35 points lower, or 0.10%, to 4,4551.94. In Germany, the DAX Index was higher by 21.77 points, or 0.42%, to 5,146.45.
In Asia, the markets finished with losses. The Nikkei fell 97.10 points, or 0.92%, to 10,473.91, on more signs of a deteriorating domestic economy. In Hong Kong, the market shed 91.87 points, or 0.78%, to 11,693.05.
By Heesun Wee in New York