Early gains in stocks unraveled Wednesday after the Federal Reserve signaled that the economic recovery will be slow. Stocks ended mixed after the Fed's announcement that economic activity has improved in nine of its 12 districts but that the gains are "modest."
The report dampened enthusiasm that followed an upbeat report on services industries and more takeover news. The Dow Jones industrial average fell 9 points. For a second day, the Dow erased its losses for 2010 before surrendering the gains by the close.
Stocks had been up for three straight days so some slowdown wasn't surprising. Major stock indexes stand at their highest levels since mid-January, when the Standard & Poor's 500 index began a 9 percent drop on concerns that the market was getting too far ahead of the still-struggling economy.
The market got an early boost Wednesday from a report that the services industries grew at the fastest rate in two years last month. Growth in services industries is seen as crucial for a rebound. The Institute for Supply Management's services index for February rose to 53 from 50.5 in January. Economists had forecast that the index would hit 51.
More corporate deal making also helped stocks, as occurred earlier in the week. Acquisitions signal that businesses are confident in the direction of the economy. In the latest deal, private equity firm Elliott Associates offered to buy the 91.5 percent of software maker Novell Inc. that it doesn't already own.
Separately, a report on the labor market came in as expected. Payroll company ADP said employers cut 20,000 jobs last month. The ADP report is seen an early indicator of the government's closely watched monthly employment report, though there are often wide variations. The Labor Department is expected to report on Friday that the unemployment rate edged up to 9.8 percent last month and that employers cut 50,000 jobs. The struggling labor market is still one of the biggest concerns for investors.
But the Fed's afternoon report raised concerns that the recovery will be slow because of weak demand for loans and a mostly soft job market.
Tom Parker, an Analyst at Huntley Claire Associates in Seattle, said “I am not seeing enough of an improvement in economic numbers to justify confidence in the recovery.” The Huntley Claire Analyst went on to say, “We are coasting along from one day to the next and from one week to the next but we're really not getting any sense that things are being structurally fixed.”
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