By
TIM PARADIS, AP Business Writer Tim Paradis –
NEW
YORK – Early gains in stocks unraveled Wednesday after the Federal Reserve
signaled that the economic recovery will be slow.
Stocks ended mixed after
the Fed's announcement that economic activity has improved in nine of its 12
districts but that the gains are "modest."
The report dampened
enthusiasm that followed an upbeat report on services industries and more takeover news. The Dow Jones industrial average
fell 9 points. For a second day, the Dow erased its losses for 2010 before
surrendering the gains by the close.
Stocks had been up for
three straight days so some slowdown wasn't surprising. Major stock indexes
stand at their highest levels since mid-January, when the Standard & Poor's
500 index began a 9 percent drop on concerns that the market was getting too
far ahead of the still-struggling economy.
The market got an early
boost Wednesday from a report that the services industries grew at the fastest
rate in two years last month. Growth in services industries is seen as crucial
for a rebound. The Institute
for Supply Management's services index for February rose to 53 from 50.5 in
January. Economists had forecast that the index would hit 51.
More corporate dealmaking
also helped stocks, as occurred earlier in the week. Acquisitions signal that
businesses are confident in the direction of the economy. In the latest deal,
private equity firm Elliott Associates offered to buy the 91.5 percent of
software maker Novell Inc.
that it doesn't already own.
Separately, a report on the
labor market came in as expected. Payroll company ADP said employers cut 20,000
jobs last month.
The ADP report is seen an
early indicator of the government's closely watched monthly employment report,
though there are often wide variations. The Labor Department is expected to report on Friday
that the unemployment rate
edged up to 9.8 percent last month and that employers cut 50,000 jobs. The
struggling labor market is still one of the biggest concerns for investors.
But the Fed's afternoon
report raised concerns that the recovery will be slow because of weak demand
for loans and a mostly soft job market.
Tom Samuels, manager of the
Palantir Fund in Houston, said he isn't seeing enough of an improvement in
economic numbers to justify confidence in the recovery.
"We're coasting along
from one day to the next and from one week to the next but we're really not
getting any sense that things are being structurally fixed," Samuels said.
His fund bets certain stocks will rise while others will fall.
The Dow fell 9.22, or 0.1
percent, to 10,396.76. It had risen nearly 64 points during trading.
The broader S&P 500 index
rose 0.48, or less than 0.1 percent, to 1,118.79, its highest close since Jan.
20. The Nasdaq composite index
slipped 0.11, or less than 0.1 percent, to 2,280.68.
Bond prices fell, pushing
yields higher. The yield on the benchmark 10-year Treasury note rose to 3.63
percent from 3.61 percent late Tuesday.
The dollar was mixed
against other major currencies. Gold rose.
Crude oil rose $1.19 to
$80.87 per barrel on the New
York Mercantile Exchange.
Recent dealmaking has
raised hopes that businesses will boost spending. Insurer American International Group agreed
earlier in the week to sell its important Asian life insurance business to Britain's
Prudential for $35.5 billion. On Tuesday, Dow Chemical Co. sold its Styron plastics
business to private equity firm Bain Capital for $1.63 billion.
Nick Kalivas, vice
president of financial research at MF Global in Chicago, said the merger news has
reassured investors that stocks aren't overpriced because companies are still
willing to pursue deals.
"It's causing people
to get excited about owning stocks and I think it shows that there might be
some value here," Kalivas said.
Meanwhile, austerity
measures announced by Greece on Wednesday allayed some concerns about the
global economy. Investors have been trying to determine whether problems there
will spill over to other economies.
Among stocks, Novell jumped
$1.33, or 28 percent, to $6.08.
Health care stocks fell after a drug being
developed by Pfizer Inc.
and Medivation Inc.
for Alzheimer's disease failed in a late-stage trial. Pfizer fell 28 cents, or
1.6 percent, to $17.32. It was the biggest loser among the 30 stocks that make
up the Dow.
Medivation plunged $27.15, or 67.5 percent, to
$13.10 a day after setting a 12-month high.
The drop in health stocks
came after President Barack Obama called on Congress to pass his latest health care package,
which incorporates some Republican
proposals.
Advancing stocks narrowly
outpaced those that fell on the New York Stock Exchange, where consolidated
volume came to 4 billion shares compared with 4.3 billion Tuesday.
The Russell 2000 index
of smaller companies rose 0.95, or 0.2 percent, to 649.26.
Britain's FTSE 100 rose 0.9 percent, Germany's DAX gained
0.7 percent, and France's
CAC-40 rose 0.8 percent. Japan's Nikkei stock average rose 0.3 percent.