Fed Statement Leaves Stocks Flat

The major indices had run higher, but pull back.
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Updated from 4:12 p.m. EDT

Stocks ended little changed Thursday after traders dissected a

Federal Reserve

policy statement that came with a tempered view on inflation but overall few surprises.

The

Dow Jones Industrial Average

initially spiked after the statement, but it wavered and ultimately closed down 5.45 points, or 0.04%, at 13,422.28. The

S&P 500

was off 0.63 point, or 0.04%, at 1505.71. The

Nasdaq

added 3.02 points, or 0.12%, to 2608.37.

The Federal Reserve Open Market Committee, as expected, kept its fed funds target rate at 5.25% for the eighth straight meeting.

While the FOMC reiterated in its policy statement that the adjustment in the housing sector is ongoing, the Fed altered language when referring to economic growth, now saying that recent indicators showed that "growth appears to have been moderate during the first half of this year."

The Fed also removed the term "elevated" in describing inflation. It said that readings on core inflation "have improved modestly in recent months," but that "a sustained moderation in inflation pressures has yet to be convincingly demonstrated."

Any future rate changes, the Fed said in repeating past comments, will depend on the outlook for both inflation and economic growth, as indicated by incoming data.

"It's no big surprise, but there are a few interesting points," said Steven Sheldon, CFA and principal of SMS Capital Management. "They are aware that housing is a problem, but that the economy is holding up pretty well. It looks as though they're going to continue to be on hold, until the housing sector gets worse or the labor market gets tighter."

Richard Yamarone, director of economic research with Argus Research, said that investors shouldn't expect a change in interest rates from the Fed "for a while."

"If you are a Fed official with the ability to influence monetary policy, you really have to have a compelling argument to increase rates at a time when the most interest rate-sensitive sector is mired in recession," Yamarone said. "Furthermore, the latest developments in the subprime arena and the unknown effect on the hedge fund and financial markets are also good reasons to adopt a wait-and-see approach to policymaking."

Government bonds slipped following the Fed's announcement. The 10-year note was down 9/32 in price, yielding 5.11%, and the 30-year bond fell 9/32 to yield 5.21%. The dollar was little changed against the world's major currencies.

Dampening enthusiasm was a sharp increase in energy prices, as questions swirled around Venezuelan production.

Exxon Mobil

(XOM) - Get Report

and

ConocoPhillips

(COP) - Get Report

still have not come to an agreement with Venezuela's state-run oil firm allowing the companies to continue to pump there.

After topping $70 a barrel earlier, crude ended the day higher by 60 cents at $69.57 a barrel. Gasoline added a penny to $2.27 a gallon. As for precious metals, gold was higher by $5.60 to $650.40 an ounce, and silver was up 17 cents to $12.37.

Investors also digested new government data that showed the domestic economy performed slightly better during the first quarter than initial reads had indicated. The Commerce Department said gross domestic product rose 0.7% last quarter, up from a preliminary 0.6%, but was still below the 2.5% annual pace in the fourth quarter.

Economists expected a revision to 0.8%. The year-over-year change in inflation was raised to 2.3%, up from 2.2%.

The GDP report was the last of three that will be released on the first quarter.

In another report, the Labor Department said that initial jobless claims fell by 13,000 last week to 313,000. The less volatile four-week moving average rose 1,000 to 316,000.

To date, the Dow has gained 7.7% for the year, the S&P 500 is up 6.2%, and the Nasdaq has risen 8% in 2007. However, for the month of June, the Dow is down 1.4% and the S&P 500 has lost 1.6%. The Nasdaq is flat for the month.

Breadth in Thursday's session weakened a bit and volume was also lower compared to earlier in the week. About 2.79 billion shares changed hands on the

New York Stock Exchange

, with advancers beating decliners by a 10-to-7 margin. Volume on the Nasdaq reached 1.93 billion shares, as winners outpaced losers 8 to 7.

In corporate news,

Capital One

(COF) - Get Report

gained 1.1% after the company said it would eliminate 2,000 positions and restructure some of its operations in a bid to save around $700 million on a pretax basis. The stock rose 87 cents to $79.67.

Elsewhere,

Bed Bath & Beyond

(BBBY) - Get Report

and

Red Hat

(RHT) - Get Report

posted better-than-expected earnings, and

LSI

(LSI) - Get Report

offered a disappointing forecast and said it will cut jobs. Bed Bath & Beyond fell 3.9% to $36.09, and Red Hat slumped 7.5% to $22.37. LSI dropped 11.5% to $7.65.

When the new day arrived, so did more earnings.

Constellation Brands

(STZ) - Get Report

beat estimates on an adjusted basis and named Rob Sands as CEO, while

General Mills

(GIS) - Get Report

was short of Wall Street's targets and guided lower for the year. Constellation finished up 3.5% to $24.98. General Mills lost 2% to $58.27.

On the research front,

Cisco Systems

(CSCO) - Get Report

was upgraded to buy from neutral at Merrill Lynch, with a $31 price target, and Lehman upgraded

Intel

(INTC) - Get Report

to overweight from equal weight, lifting its target by $4 to $28.

Cisco added 58 cents, or 2.1%, to $27.85. Intel was higher by 13 cents, or 0.6%, to close at $23.92.

JPMorgan took action on a number of airlines, upgrading

Southwest

(LUV) - Get Report

,

Alaska

(ALK) - Get Report

,

Continental

(CAL) - Get Report

,

UAL

(UAUA)

,

AMR

(AMR)

and

US Airways

(LCC)

.

The firm downgraded small carriers

Republic Airways

(RJET)

and

SkyWest

(SKYW) - Get Report

.

Overseas, stocks rose. Tokyo's Nikkei was up 0.5%, and Hong Kong's Hang Seng climbed 1.1%. London's FTSE was higher by 0.7%, and Frankfurt's DAX rose 1.5%.