Stocks End Mixed After Fed Holds Steady

The Lowdown

A less-than-stellar economic prognosis from the Federal Reserve left Wall Street nonplussed Tuesday.

Stocks gave up early gains and finished mixed Wednesday after the Federal Reserve held the federal funds rate steady and cited slow but palpable improvements in the economy. The Dow Jones Industrial Average dropped 23 points to 8300. The Nasdaq picked up 27 at 1792, and the S&P 500 climbed 6 to 901.

The Fed surprised few traders when it left the benchmark interest rate at 0.00% to 0.25%. The move was widely expected, as recent economic data have signaled neither a recovery nor heavy price pressures. Still, the Fed was optimistic about the future.

"Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," the Fed wrote in its statement. "Conditions in financial markets have generally improved in recent months."

The Fed said the housing recovery remains unstable and that rising unemployment is still a concern. The Fed added that it expects inflation "will remain subdued for some time."

The latest housing data supported the Fed's statement. The annual rate of new home sales dipped slightly in May to 342,000, according to a federal report released Wednesday. Economists had been expecting an increase.

In other economic news, demand looks a bit stronger after new data from the Commerce Department showed durable goods orders rose in May. Economists had projected a decline.

Tech stocks were the market's bright spot, as traders cheered fourth-quarter results from Oracle (ORCL: 21.26, +1.39, +6.99%). The software firm topped analysts' estimates and reported record margins.

In finance, Citigroup (C: 3.04, +0.03, +0.99%) said it would lift base pay for some of its employees by as much as 50%, CNBC reported. The change is designed not to increase overall compensation but to shift the model away from bonuses, which critics say promote risky behavior.

On the Nymex, oil prices were lower after the Energy Department said crude inventories dipped slightly last week. By 5:05 p.m., crude traded at $68.45 a barrel.

World markets were broadly higher. In Asia, Japan's Nikkei picked up 0.4%, and Hong Kong's Hang Seng rose 2.0%. In Europe, the U.K.'s FTSE picked up 1.2%.

Corporate News

• Oracle (ORCL: 21.26, +1.39, +6.99%) posted a 7% drop in fourth-quarter profit, but the firm still topped analysts' estimates on support contract sales. The firm earned $1.89 billion, or 38 cents a share, up from $2.04 billion, or 39 cents a share, in the year-ago period. Excluding one-time charges, the firm earn 46 cents a share, two cents above Wall Street estimates.
• JPMorgan Chase (JPM: 33.46, -0.11, -0.32%) was named the strongest bank in a ranking of financial firms published in The Banker magazine. JPMorgan had ranked fourth strongest last year. Meanwhile, Royal Bank of Scotland (RBS: 11.69, -0.03, -0.25%) posted the largest loss ($59.3 billion) of any bank last year.
• IBM (IBM: 104.15, -0.29, -0.27%) tapped Elias Mendoza to be its new head of mergers and acquisitions, the firm said. Mendoza, who had overseen M&A for IBM in Asia, takes over for David Johnson, who had been wooed away by Dell (DELL: 13.28, +0.30, +2.31%).

The Economy

• The Federal Open Market Committee of the Federal Reserve left  the federal funds rate unchanged at 0.00% to 0.25%. The Fed said the pace of the contraction had slowed and that financial markets had showed signs of improvement since the last policy statement. The Fed also said core inflation appeared likely to remain in check for the foreseeable future. STATEMENT
• Durable goods orders, a measure of demand, rose 1.8% in May, up from a revised April increase of 1.8%, the Commerce Department said. Economists had expected a May decline of 0.9%. REPORT
• The annual rate of new home sales fell to 342,000 in May, down from a revised annual rate of 344,000 in April, the Commerce Department said. For May, economists had expected an increase to an annual rate of 360,000 sales. REPORT
• Crude inventories fell by 3.8 million barrels last week, but they remained above the upper limit of the average range for this point in the year, the Energy Department said