Wall Street Sags After Fed Comments, But Cisco Surges

By Leah Schnurr

NEW YORK - U.S. stocks fell on Thursday, with the downturn accelerating late in the day after a Federal Reserve official said the central bank could begin easing up on its monetary stimulus this summer.

The three major U.S. stock indexes had earlier traded in a tight range, supported by a gain of more than 12 percent in Cisco Systems (CSCO) shares and as investors took in a batch of economic data that pointed to slower growth.

But the S&P 500 finished near its session low following the comments from John Williams, the president of the Federal Reserve Bank of San Francisco, who also said the Fed could end its bond purchases later this year, assuming the labor market continues to grow stronger. Williams is not a voter on the Fed's policy-setting panel this year.

"When a Fed governor is out there and mentions this possibility, it does spook the market a little because I don't think anybody quite knows how the stock market is going to react once (the stimulus) is taken away," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

The Fed's purchases of $85 billion a month in bonds has been a significant driver of the rally in equities that has taken indexes to record highs and pushed the S&P 500 up nearly 16 percent this year.

Analysts also said the comments could have been viewed as a reason to take a pause after such a strong run-up in stocks.

"It turned a boring day into a bit of profit taking," Ghriskey said.

The Dow Jones industrial average (^DJI) dropped 42.47 points, or 0.28 percent, to 15,233.22 at the close. The Standard & Poor's 500 Index (^GSPC) fell 8.31 points, or 0.50 percent, to end at 1,650.47. The Nasdaq Composite Index (COMPX) slipped 6.37 points, or 0.18 percent, to finish at 3,465.24.

Earlier, the Dow reached a fresh all-time intraday high at 15,302.49.

The Nasdaq fared better than the other two major indexes as Cisco shot up 12.6 percent at $23.89 after the network equipment maker posted a higher-than-expected quarterly profit and said current-quarter revenue could increase.

Economic data had set a lackluster tone in markets early in the day as factory activity in the mid-Atlanticregion contracted, while U.S. housing starts plummeted 16.5 percent in April. New claims for jobless benefits unexpectedly jumped last week.

However, investors had speculated that soft underlying inflation also means the Fed has room to continue its economic stimulus.

Wal-Mart Stores Inc (WMT) fell 1.7 percent to $78.50 and dragged on the Dow after the world's largest retailer posted a quarterly profit that missed expectations, with sales down 1.4 percent at U.S. stores open at least a year.

Tesla Motors Inc (TSLA) shares gained 8.7 percent to $92.25 after the electric carmaker said it aims to raise $830 million through a stock-and-debt offering that will be used to repay its U.S. Department of Energy loans with interest. The stock has surged more than 50 percent since the company reported earnings last week.

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