Not ... so ... fast

, said the

Federal Open Market Committee as it delivered another round of cautious comments about inflation risks on the economic front.

Investors may have spent a good part of the session yawning about the widely expected decision to leave rates unchanged but after the 2:10 p.m. EDT announcement, boredom turned to fear and disappointment as the Fed opted not to give investors the all-clear sign with a more neutral stance on inflation risks.

"

The Committee believes the risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the future," read the final paragraph of the

Federal Reserve policy panel's

statement.

That did not sit well with investors who were hoping that the continuing stream of economic data pointing to a slowdown would nudge the committee toward loosening up a bit. Stocks spent the better part of the session building solid gains, but the party quickly ended as the Fed's comments sank in.

The tech-heavy

Nasdaq Composite Index ended the day with a painful triple-digit loss that left it near a level not seen since May 31, when it closed at 3400.91. The Comp dumped 114.17, or 3.2%, to 3454.73. It is down more than 15% for the year to date and more than 18% since the start of September.

Blue-chips also lost their shine but managed to stay in the green, with the

Dow Jones Industrial Average up 19.61, or 0.2%, to 10,719.74. The

S&P 500 and

Russell 2000 also lost ground.

"Many people are expecting the next Fed move to be a rate cut," said Howard Barlow, vice president of

WHB/Wolverine Asset Management

in Stamford, Conn. "Well, guess what? Everyone is probably right, but it's probably not going to happen in three months, and not even in six months. There is not going to be a rate cut unless there is some global catastrophe with major trading partners or GDP."

Shortly after 2 p.m., the Dow and the Comp went into a slide that lasted into the close. What makes the action seem so unusual was the general feeling preceding the Fed meeting that it was a nonevent. Jay Meagrow, vice president of trading at

McDonald

in Cleveland, said earlier that some people were even double-checking that the Fed meeting was today, so little fanfare did it receive this time around. That stands in sharp contrast to previous meetings as market watchers waited anxiously to see when the latest series of rate hikes would come to an end as the red-hot economy finally showed signs of cooling off.

"Attentions are elsewhere," said Meagrow, before the afternoon drop picked up steam. "Investors are preoccupied with a lot other things, and mainly the earnings season. "They didn't put a lot of thought into it, they were just running orders out there and just kept working," he said of the trading activity for most of the day.

Cohen Wields Little Influence Today

Investors weren't too preoccupied to take action on the Fed comments. Not even upbeat comments on the tech sector from the ever-bullish Abby Joseph Cohen of

Goldman Sachs

could help stem the selloff. Technology bellwether

Oracle

(ORCL) - Get Report

got slammed $9.25, or 11.8%, to $69.50 despite positive analyst comments, also from Goldman.

In the past, comments from Cohen have sparked substantial movement, and while some say Cohen's repetitiveness on tech stocks have lost weight among traders and investors. "In a market that's been in the doghouse for five weeks, investors have become more jaundiced to announcements like these," said Alfred Goldman, chief market strategist at

A.G. Edwards

in St. Louis.

Still, he did say his firm agrees with Cohen and that tech stocks are the most dynamic area of the market right now. "It really is just the best time to buy stocks," Goldman said.

A report from the

Semiconductor Industry Association

that revealed record global semiconductor sales in August initially gave substantial power to semiconductor stocks, but the strength faded. On closer reading, the report reveals that while sales were up in dollar terms, total units sold fell. In other words, record sales may be wholly attributable to the strong dollar, while a drop in units would confirm worries of a slowdown in chip demand.

Concern over a slowdown in chip demand was exacerbated last month after

Intel

(INTC) - Get Report

warned of an

earnings shortfall. The warning bulldozed Intel's share price and sharply pressured prices elsewhere in the semiconductor sector and throughout tech. Intel blamed weak European demand for its microchips.

The

Philadelphia Stock Exchange Semiconductor

index lost 2.5% after earlier posting decent gains.

Xerox

(XRX) - Get Report

, off 25.7%, was the NYSE's most active stock after reporting postclose yesterday that it expects to see a third-quarter loss rather than a profit. The copier and printer manufacturer attributed the shortfall to weaker-than-expected sales in North America and Europe and heavy competition in all businesses.

The

company reported that it anticipates a loss of 15 cents to 20 cents a share, compared with the analyst forecast of a 12-cent profit. Back in July, the company had warned of weakness in its second half. At that time, Wall Street lowered its consensus earnings estimate. "Xerox doesn't take the market down anymore, because they can't seem to get it right any quarter," said Meagrow.

Among tech stocks that managed to maintain their gains,

Corel

(CORL)

popped 56.8% to $5.78 on news that

Microsoft

(MSFT) - Get Report

will take a 24.6% stake in the company.

Market Internals

Breadth was negative on active volume.

New York Stock Exchange: 1,360 advancers, 1,524 decliners, 1.1 billion shares. 106 new 52-week highs, 77 new lows.

Nasdaq Stock Market: 1,527 advancers, 2,543 decliners, 1.9 billion shares. 53 new highs, 233 new lows.

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Most Active Stocks

NYSE Most Actives

  • Xerox: 40.3 million shares.
  • Lucent (LU) : 19.1 million shares.
  • Nortel (NT) : 17.5 million shares.

Nasdaq Most Actives

  • Intel: 79.8 million shares.
  • Cisco (CSCO) - Get Report: 64 million shares.
  • Oracle : 47.65 million shares.

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Sector Watch

Transportation and paper stocks were strong, while insurance stocks faltered.

The

Dow Jones Transportation Average

, up 1.4%, got a lift from airline components, including

AMR

(AMR)

,

Delta

(DAL) - Get Report

and

Southwest Airlines

(LUV) - Get Report

.

The

Philadelphia Stock Exchange Forest & Paper Products Index

rose 4.2% thanks to support from nearly every component. Yesterday,

Bowater

(BOW)

announced that it was in a tentative deal to buy a newsprint mill from a South Korean papermaker. It was rose 4.3%.

The

S&P Insurance Index

slipped 1.1%.

Progressive

(PGR) - Get Report

weighed on the measure, dropping 1.5%.

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Bonds/Economy

Treasuries came under pressure after the

Federal Open Market Committee's decision on interest rates. Some investors had expected the Fed to take a friendlier tone, describing the risks to the economy as balanced between higher inflation and slower growth.

Today's economic data were more or less in line with expectations.

new home sales

(

definition |

chart |

source

) fell 3.0% to 893,000, while the

index of leading economic indicators

(

definition |

chart |

source

) fell 0.1%, its fifth consecutive negative or unchanged reading.

The benchmark 10-year

Treasury note lost 7/32 to 99 5/32, its yield rising to 5.861%.

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International

Major European markets ended the day on the upside.

In London, the

FTSE 100

was up 60.50 to 6345. Banking giant

HSBC

(HBC)

was accounting for the majority of the FTSE's gains on rumors that it was in merger talks with U.S. brokerage

Merrill Lynch

(MER)

. HSBC has denied the rumors.

Across the channel, the

CAC 40

in Paris was 51.19 higher to 6400.43. The

Xetra Dax

in Frankfurt gained 64.14 to 6862.26.

After voters in Denmark decided not to join the euro last week, the single currency was lately trading at 0.8757.

Asia's major markets put in a lackluster session Tuesday, as a surging report on Japanese business sentiment failed to dispel fears about earnings warnings.

The

Bank of Japan's

tankan

survey of business sentiment hit its highest level in three years, but the

Nikkei 225

was only able to eke out a 9.6-point gain to 15,912.1.

In Tokyo currency trading, the dollar fell against the yen to 108.88 yen. The greenback was lately trading lower at 108.87 yen.

Hong Kong's equity markets returned from a holiday Monday, but Seoul's

Kospi

index was closed for a Korean holiday. Hong Kong's

Hang Seng

index rose 77.0, or 0.5%, to 15,725.9 and Taiwan's

TWSE

index finished up 119.4, or 1.9%, at 6143.4, as the government said it would continue to use some 500 billion Taiwanese dollars ($16 billion) to support the country's equity markets.

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