clock menu more-arrow no yes

Filed under:

Stocks slip as Bernanke points to end of stimulus

NEW YORK — The stock market managed to steady itself after hearing Federal Reserve Chairman Ben Bernanke's plans to dismantle the central bank's supports for the economy.

The Dow Jones industrial average closed with a loss of 20 points after falling nearly 100 in early trading. Treasury prices fell as demand for safe havens eased.

The initial drop in stocks came as Bernanke revealed the Fed's thinking on how to wean the market from massive emergency supports put in place to keep the economy afloat.

Investors studying Bernanke's plans for withdrawal also hoped overseas governments would marshal more support for the markets by coming up with a bailout for Greece. The talk of less support for U.S. markets and desire for more intervention in Europe brought another reminder of how fragile the recovery has been.

"We're in a messy transition period," said Paul Ballew, chief economist at Nationwide Insurance in Columbus, Ohio. "While you see policy makers back off in some areas you're going to continue to see them intervene in other areas."

Officials said the European Union member nations have made no decisions about how to help Greece, which is struggling with big debts. There are concerns that financial woes in Greece, Spain and Portugal would spread and upend a global economic recovery.

European debt problems are the latest obstacles to hit the market in the past four weeks and halt a 10-month advance in stocks. Investors have also been concerned about China's plans to curtail economic growth to avoid speculative bubbles and President Barack Obama's calls to restrict trading at large financial institutions.

The latest pause in the market came as Bernanke said the Fed likely will begin tightening credit by raising the interest rate it pays to banks on the money they have deposited at the Fed. That would lead to an increase in borrowing rates for consumers and businesses. The Fed chief said that the central bank is not yet ready to boost interest rates, which stand at record lows.

Craig Kaufman, co-founder and head of capital markets at Kaufman Bros. L.P. in New York, said the Fed's plan is reasonable and didn't represent a shift in policy.

"We're sort of in this fake world and we need to show that we're moving back to a normalized process," Kaufman said, referring to the record-low interest rates.

According to preliminary calculations, the Dow fell 20.26, or 0.2 percent, to 10,038.38 a day after jumping 150 points as hope of a Greece bailout grew.

The broader Standard & Poor's 500 index fell 2.39, or 0.2 percent, to 1,068.13, while Nasdaq composite index fell 3.00, or 0.1 percent, to 2,147.87.