US Treasuries rose after the Federal Reserve said it planned to buy longer-dated debt and sell short-term securities in an effort to bolster the flagging economy.The Fed's plan to buy US$400 billion of bonds with maturities of six through 30 years while selling the same amount of debt maturing in three years or less, a measured aimed at keeping borrowing costs low, drew investors to fixed-income securities.
"This is a stronger policy action than the market was expecting, given their aggressiveness further out the yield curve, and so you are seeing Treasuries rally as a result," Gary Pollack, head of fixed-income trading at Deutsche Bank's private wealth management unit in New York, told Bloomberg News.
Yields on 30-year bonds fell 17 basis points to 3.04 per cent at 2.37pm in New York, according to Bloomberg Bond Trader prices.
The US dollar rose 0.54 per cent against a basket of major currencies.
In a statement, the Fed warned of "significant downside risks to the economic outlook, including strains in global financial markets."
That naturally didn't sit well with equity investors and stocks extended losses. In late trading in New York, the Dow Jones Industrial Average dropped 1.24 per cent, the Standard & Poor's 500 Index shed 1.56 per cent and the Nasdaq Composite Index fell 0.42 per cent.
"That headline of economic outlook - I don't know why people are surprised to read that - but it seems to be what people are fixated on, and that is what is driving the market lower," Stephen Massocca, managing director at Wedbush Morgan in San Francisco, told Reuters.
A report showing existing home sales rose more than expected in August failed to boost optimism about the housing market. Sales rose 7.7 per cent from the previous month, the National Association of Realtors said. The median price was 5.1 per cent lower than a year earlier.
"This housing market is still very distressed," Michael Hanson, an economist at Bank of America Merrill Lynch in New York, told Reuters. "We have to get a lot of good news for a meaningful turnaround in the housing market."
Financial shares were among the decliners after Moody's lowered the crediting ratings of Bank of America, Citigroup and Wells Fargo.
They are not the only ones in trouble. Hewlett-Packard's board convened on Wednesday to consider ousting CEO Leo Apotheker after less than a year on the job and replacing him temporarily with former eBay CEO Meg Whitman, a source familiar with the matter told Reuters.
If let go, Apotheker would be the third CEO in a row to be ousted by the board. It is a move applauded by investors, it seemed, as the stock jumped more than 11 per cent.
"He was doomed from the beginning," Ticonderoga Securities analyst Brian White told Reuters. "The die was cast for whoever stepped into that position."
In Europe, the benchmark Stoxx 600 Index dropped 1.7 per cent.
Officials from the European Union, the European Central Bank and the International Monetary Fund planned to return to Athens next week after three days of talks failed to solve the Greek debt crisis, even as Greece reiterated that progress was being made.