US stocks: Growth worries offset Fed's pause

NEW YORK - US stocks fell on Tuesday as investors worried that slowing economic growth would hurt corporate profits despite a pause in the Federal Reserve's two-year campaign of raising interest rates.

As expected, the Fed's policy-making committee left the benchmark fed funds rate unchanged at 5.25 per cent, and said economic growth had moderated "from its quite strong pace earlier this year."

The Fed's decision was not unanimous, with a dissenting vote cast by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond. He argued for another rate hike of a quarter-percentage point.

Traders said the Fed's statement cued investors to sell shares of companies whose fortunes are closely tied to economic cycles, including heavy equipment maker Caterpillar Inc. and industrial conglomerate United Technologies Corp. They were among the Dow's biggest losers.

But defensive stocks, including consumer staple companies such as Altria Group Inc. and Procter & Gamble Co., rose. Their gains helped limit the Dow's decline.

"Once the dust settled, the Fed is (saying) their forecast is not the best one for the equity market," said Joe Liro, market strategist for Stone & McCarthy Research Associates, in Princeton, N.J.

With the "housing sector weakening, the consumer sector a little soft and even the investment side looking a little bit dicey -- the three cornerstones of private-sector growth are looking a bit tepid."

The Dow Jones industrial average fell 45.79 points, or 0.41 per cent, to end at 11,173.59. The Standard & Poor's 500 Index declined 4.29 points, or 0.34 per cent, to finish at 1,271.48. The Nasdaq Composite Index dropped 11.65 points, or 0.56 per cent, to close at 2,060.85.

Major indexes had briefly extended gains following the Fed's decision, but soon reversed course as growth concerns resurfaced, adding to worries fueled by Friday's weaker-than-expected July jobs data.

Caterpillar shares dropped 2.2 per cent, or US$1.58, to US$71.60 on the New York Stock Exchange, and was the second-biggest drag on the Dow, ranking behind US defence contractor and jet manufacturer Boeing Co., whose stock fell 2.01 per cent, or US$1.60, to US$78.15.

UTX shares slid 1.9 per cent, or US$1.21, to US$61.88 on the NYSE. The stock was the third-biggest drag on the Dow, followed by diversified manufacturer 3M Co., whose shares fell 0.6 per cent, or 44 cents, to US$68.56.

Shares of General Electric Co., another economic bellwether, lost 1.1 per cent, or 35 cents, to US$32.34. The stock was the top drag on the S&P 500.

On Nasdaq, shares of Apple Computer Inc., the maker of the iPod digital music player, led the decline, falling 3.6 per cent, or US$2.43, to US$64.78.

But shares of Altria, parent of Marlboro cigarette maker Philip Morris USA and Oreo cookie maker Kraft, rose 1.5 per cent, or US$1.20, to US$80.30 on the NYSE. Shares of P&G, the consumer products maker, gained 0.5 per cent, or 27 cents, to US$59.67 in NYSE trading.

After the closing bell, shares of Cisco Systems Inc. rose 1.4 per cent to US$17.54 after the network equipment maker reported that its quarterly earnings and revenue rose more than expected. Cisco's stock closed on Nasdaq at US$17.29, down 0.7 per cent, or 11 cents, before the results were released.

Dureing the regular session, volume on the New York Stock Exchange totaled 1.62 billion shares, slightly above last year's daily average of 1.61 billion. On the Nasdaq, about 1.93 billion shares changed hands, exceeding last year's daily average of 1.80 billion shares.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, about two stocks fell for every one that rose.

- REUTERS