Wall Street gained and US Treasuries fell after minutes from the latest US Federal Reserve meeting were taken as a signal that the central bank is set to begin tapering its bond-buying program at its next meeting in September.
"First, almost all participants confirmed that they were broadly comfortable with the characterisation of the contingent outlook for asset purchases that was presented in the June post-meeting press conference and in the July monetary policy testimony," according to minutes of the July 30-31 Federal Open Market Committee meeting released today. "Under that outlook, if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year."
"Almost all Committee members agreed that a change in the purchase program was not yet appropriate," the minutes showed. "A few members emphasised the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases. At the same time, a few others pointed to the contingent plan that had been articulated on behalf of the Committee the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan."
In late afternoon trading in New York, the Dow Jones Industrial Average edged 0.01 per cent lower, while the Standard & Poor's 500 Index added 0.14 per cent, and the Nasdaq Composite Index rose 0.33 per cent.
Earlier in the session the S&P 500 had dropped as much as 0.8 per cent.
US Treasuries declined, sending yields on the 10-year bond 6 basis points higher to 2.87 per cent.
"It does appear the markets are continuing to expect tapering," James Camp, managing director of fixed income in St Petersburg, Florida, at Eagle Asset Management, told Bloomberg News. "The Fed wants out of QE. In the near-term we see a 3 per cent handle."
Some are worried the strength of the economic recovery does not yet warrant an easing back of the stimulus.
"It seems the Fed is under immense pressure to begin tapering, rather than doing it for macro reasons," Todd Schoenberger, managing partner at Landcolt Capital in New York, told Reuters. "It doesn't seem like the economy is ready for tapering, and this makes me a bit concerned."
US corporate earnings provided a mixed bag today.
Shares of Lowe's rallied, last up 4 per cent, after the company lifted its full-year earnings forecast as the recovery in the US housing market encouraged spending on home renovations.
However, many other retail earnings failed to live up to expectations.
Shares of Target fell, last 3.1 per cent weaker, after the company said its full-year profit may be near the low end of its forecast because of sluggish consumer spending.
Shares of Staples sank, last down 14.6 per cent, after the company posted poor quarterly results on flagging sales overseas and downgraded its outlook for the year.
Shares of American Eagle Outfitters plunged, last down 9.5 per cent, after the company earnings outlook disappointed.
In Europe, the Stoxx 600 Index fell 0.5 per cent from the previous close. Germany's DAX declined 0.2 per cent, France's CAC 40 weakened 0.3 per cent, while the UK's FTSE 100 Index dropped 1 per cent.