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Stocks Close Mixed Despite Compliant Fed

NEW YORK (TheStreet) -- Stocks failed to hold gains made after the Federal Reserve left rates unchanged and signaled its readiness to enact accommodative policies if needed.

The Dow Jones Industrial Average finished 7 points, or 0.07% higher at 10,761 while both the S&P 500 and the Nasdaq lost ground. The S&P 500 shed 3 points, or 0.3%, to 1140, and the Nasdaq lost 7 points, or 0.3%, to 2349.

The U.S. dollar tanked against a basket of currencies following the Fed's announcement, with the dollar index last down over 1%.

In its much-anticipated rate decision and outlook statement, the Federal Open Market Committee said that the pace of recovery had slowed in the last few months and that it would maintain its target rates at zero to 0.25%. Additionally, the FOMC paved the way to "provide additional accommodation if needed."

Bernanke
Federal Reserve Chairman Ben Bernanke

"Everyone knew the target rates were going to stay around zero. The question was how big the balance sheet was going to grow," said James Dailey, portfolio manager of TEAM Asset Strategy Fund. "The Fed has now laid the groundwork to grow the balance sheet even more."

Dailey also said that the dollar's swift downward reaction was not unexpected in light of more quantitative easing. "From a risk-reward perspective, a long dollar vs. euro trade would actually make sense now. It is counterintuitive, but people are ignoring the fact that Europe has growth issues which could weaken the euro," he said.

Stocks ran in place just below the flat line for most of Tuesday's session but got a bump after the Fed's rate decision statement was released.

Earlier, the Department of Commerce said housing starts rose 10.5% to 598,000 from 541,000 in July. That was higher than the 550,000 starts that economists had been expecting for August, according to Briefing.com. Building permits also hit a higher-than-expected level during the month, rising 1.8% to 569,000. The market had been anticipating 560,000 permits.

Shares across the homebuilding sector traded broadly higher Tuesday with the SPDR S&P Homebuilders ETF (XHB) up 0.5% at $15.64.

After the close of trading, the American Petroleum Institute said crude oil inventories rose by 2.23 million barrels in the week ended Sept. 17, which missed the 1.5 million-barrel drawdown that analysts polled by Platts had been expecting.

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