NEW YORK – Disheartened investors bid stocks lower Tuesday after the Federal Reserve, raising interest rates for the 14th time in nearly two years, failed to give Wall Street a clear signal on when those rate hikes would end. A disappointing earnings report from Google Inc. (GOOG) after the close of regular trading made it likely the losses would continue when trading resumed Wednesday.
The Dow Jones Industrials fell 35.06, or 0.32 percent, to 10,864.86. Broader stock indicators were modestly lower. The Standard & Poor's 500 index lost 5.12, or 0.4 percent, to 1,280.08, and the Nasdaq composite index slipped 0.96, or 0.04 percent, to 2,305.82.
Google suffered its first earnings "miss," with its fourth-quarter results falling below the market's expectations. Technology stocks dropped in after-hours trading as investors expressed their dismay by selling.
The Fed, in its statement accompanying its quarter-point increase in rates, said "some further policy firming may be needed" to keep inflation under control — leaving the door open for another hike at the next meeting in March and beyond.
The major indexes were already down ahead of the Fed's decision — the last one under outgoing Chairman Alan Greenspan — and the hint of at least one more rate hike left investors uncertain, although most analysts felt the program of continued, measured rate hikes was at an end.
"The knee-jerk reaction was things aren't as sure as everybody thought, but when I look at this, this is right in the middle of what my expectations were," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati. "They left a rate hike in the deck here in case they need it, but that doesn't mean more of the same."
Bonds edged higher on the Fed news, with the yield on the 10-year Treasury note fell to 4.52 percent from 4.53 percent late Monday. The dollar fell against most major currencies, while gold prices rose.
Crude oil futures fell after the Organization of Petroleum Exporting Countries, meeting in Vienna, decided not to cut oil production. A barrel of light crude settled at $67.92, down 43 cents, on the New York Mercantile Exchange.
Google added $5.84 to $432.66 for the session prior to releasing its fourth-quarter results. However, the stock tumbled $67.19, or 15.5 percent, to $365.47 in electronic after-hours trading once the Internet company announced its earnings. While profits more than doubled from the year-ago quarter, Google missed analysts' forecasts by 22 cents per share.
Other tech shares also dropped in after-hours trading. Yahoo Inc. (YHOO) was off 88 cents at $33.50, while Microsoft Corp. fell 26 cents to $27.89.
Looking at the Fed's move Tuesday, analysts said rising energy prices could be one reason why the central bank is keeping its options open. Should those prices spark inflation in other areas of the economy, more rate hikes could be needed to keep prices in check.
"They are determined to do the right thing, determined to keep the huge runup in energy and other commodity prices from infecting the system in a broader way by pushing up core inflation," said Stuart Schweitzer, global investment strategist, JP Morgan Asset and Wealth Management. "That means a period of uncertainty for a while for investors."
Despite continued economic uncertainty, strong corporate earnings helped the major indexes post respectable gains for the month of January. The Dow rose 1.37 percent, the S&P climbed 2.55 percent and the Nasdaq gained 4.56 percent for the month.
In other economic news, the Conference Board's consumer confidence index for January came in at a higher-than-expected 106.3, up from 103.8 in December and better than the 105 reading predicted on Wall Street. While the index rose to its highest level in three years, the news was largely overlooked by investors preoccupied with the Fed.
Mixed earnings from a pair of Dow components weighed on trading. Altria Group Inc. fell $1.57 to $72.34 after missing Wall Street profit forecasts for the quarter by 8 cents per share, despite a 19 percent jump in profits. The company's 2006 forecast, before one-time charges, was higher than analysts had predicted, however.
Merck & Co. (MRK) beat analysts' forecasts by 2 cents per share on the quarter despite flat revenue. The company took a number of one-time charges related to restructuring and legal expenses, but said it expects double-digit earnings growth over the next three to five years. Merck rose 4 cents to $34.50.
Fellow drugmaker Sepracor Inc. (SEPR) jumped $8.53, or 18 percent, to $56.91 after it posted a fourth-quarter profit after a year-ago loss. The maker of the sleep drug Lunesta said revenue more than doubled from a year ago.
Napster Inc. (NAPS) surged 79 cents, or 25 percent, to $3.91 after The New York Post reported Google could form an alliance with the online music service that could lead to an acquisition, though Google denied the report.
Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume preliminary consoldiated volume came to 2.76 billion shares, compared with 2.34 billion traded on Monday.
The Russell 2000 index of smaller companies rose 2.33, or 0.32 percent, to 733.20.
Overseas, Japan's Nikkei stock average rose 0.6 percent. In Europe, Britain's FTSE 100 was down 0.34 percent, France's CAC-40 gained 0.23 percent for the session, and Germany's DAX index climbed 0.25 percent.