Updated from 4:13 p.m. EDT
Late buying allowed stocks to pare their losses by Tuesday's close, but the upcoming
meeting and a profit warning from Internet giant
kept Wall Street from completely overcoming its earlier deficit.
Dow Jones Industrial Average
finished the session down 14.09 points, or 0.1%, at 11,540.91, and the
gave back 2.87 points, or 0.2%, to 1318.31. The
halved its earlier decline and ended lower by 13.38 points, or 0.6%, at 2222.37.
The market hit its worst levels of the day when
Chief Financial Officer Susan Decker said at an investment conference that the company's third-quarter numbers would be in the bottom half of its projected range. In July, Yahoo! had said third-quarter revenue should be $1.12 billion to $1.23 billion.
Following her comments, Yahoo!'s shares slumped 11.2% to close at $25.75, and other Internet stocks were pulled down along with it.
lost 2.6% to $403.81,
shed 3.5% to $25.95, and
surrendered 1.6% to $31.58.
Volume in Yahoo! easily exceeded 100 million shares and was six times the amount of stock traded on a normal day.
Even though the major averages ended in negative territory, a post-close announcement from
could provide some support for the tech sector heading into Wednesday. The software giant said after the bell that its quarterly profit rose 29%, and revenue jumped 30% thanks to its big acquisition spree.
Profit excluding one-time items came in at 18 cents a share, 2 cents better than the consensus forecast from Thomson Financial.
A day ahead of the Fed meeting, the Commerce Department said housing starts decreased by 6% in August, about twice as fast as had been expected, stirring up worries about the health of the economy. A housing decline tends to hurt consumer spending, which accounts for roughly two-thirds of U.S. economic activity.
Separately, the Labor Department said the core August producer price index, excluding food and energy costs, dropped 0.4%. Economists polled by
were calling for a 0.2% gain. The overall PPI edged higher by 0.1%, more benign than estimates that the overall number would rise by 0.3%.
Fed funds futures are pricing in a 95% chance that policymakers will leave rates at 5.25%, just as they did in August. Market watchers say that the statement released with the rate decision could provide some guidance, but that if nothing of note occurs the market is in for some choppy trading.
"There can't be anyone puzzled about the Fed anymore," says Jim Glassman, chief economist at JP Morgan. "They stopped tightening, and the data has come out validating that view. Stocks are pulling back because the market is wondering just how vibrant the economy is. Oil's off, and the Fed is on pause. The new focus is on the economic slowdown and whether it will hurt earnings."
Some analysts characterized the day's trading as surprising compared with the sleepy action usually seen before a Fed meeting, but with the Yahoo! warning and a coup in Thailand, the markets were rattled.
"Today is supposed to be a flat-line day going into the Fed meeting, and it's anything but," says David Briggs, head of equity trading at Federated Investors. "We've seen a $2 drop in the price of oil, but stocks didn't react
positively. It seems like there could be something strange afoot. The magnitude of the moves has me a little uneasy."
Thailand's Prime Minister Thaksin Shinawatra declared a state of emergency after his country's military took control of Bangkok. The prime minister is currently visiting New York to speak before the United Nations.
The Thai baht fell sharply, as did other emerging market currencies, including Brazil's real. Trouble in Thailand precipitated the Asian currency crisis that erupted in 1997. The dollar gained against the euro and slipped against the yen.
October crude futures lost $2.15 to $61.65 a barrel, and gasoline lost 8 cents to $1.50 a gallon. Gold shed $9.60 to $583.20 an ounce, and silver was off 35 cents at $10.94 an ounce.
Returning to the corporate side,
fell 4.9% to end at $29.16 after the company lost a patent fight related to its cancer drug Erbitux. A U.S. judge made the decision Monday, and it could mean ImClone will have to pay royalties to a team of Israeli researchers.
More upbeat news came from the retail sector, where
said this month's same-store sales should growth around 5%. Target had earlier predicted a 3% to 5% rise in same-store sales. Shares of Target rose 1.5% to $54.39.
Market breadth was negative. Decliners beat advancers on the
New York Stock Exchange
about 9 to 7 on volume of 1.4 billion shares. Losers topped winners on the Nasdaq more than 3 to 2 as 2.1 billion shares changed hands.
Elsewhere, Treasuries bolted ahead following the economic data. The benchmark 10-year note jumped 20/32 in price to yield 4.73%. The 30-year bond gained 30/32 to yield 4.86%. Prices and yields move in opposite directions.