Dec. 12, 2012 at 4:07 PM ET
An afternoon stock market rally has faded away after investors reassessed the Federal Reserve's latest plans to stimulate the economy.
The Dow Jones industrial average closed with a loss of three points at 13,245 Wednesday, while the Standard & Poor's 500 index edged up less than a point to 1,428. The Nasdaq composite fell eight points to end the day at 3,014.
Stocks moved higher in the early afternoon after the Fed announced the latest extension of its bond-purchasing program and low-interest rate policy. The Dow gained as much as 81 points before slumping in the late afternoon.
Traders were also watching budget talks in Washington.
Falling stocks narrowly outnumbered falling ones on the New York Stock Exchange. Volume was in line with the recent average at 3.6 billion shares.
The Fed said it will likely keep official rates near zero for as long as unemployment remains above 6.5 percent, inflation is projected to be no more than 2.5 percent one or two years ahead and inflation expectations remain contained.
Most economists had not expected the central bank to adopt thresholds for policy until sometime next year. The step came as Fed officials committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September, as expected.
"It's another round of easing. It is good for stocks and risk more generally. And they came out with an economic data point as a guideline. That's very important, because it helps the market anticipate an exit strategy," said Quincy Krosby, market strategist, Prudential Financial in Newark, New Jersey.
"The markets had not expected this would necessarily happen at this meeting. It gives some certainty rather than having everything open-ended."
The euro rose 0.6 percent to $1.3078 after hitting a session peak of $1.3096 after the Fed announcement. The dollar rose 0.9 percent to 83.26 yen.
The euro had jumped sharply minutes before the Fed announcement. Traders attributed the move to comments from Silvio Berlusconi, who said he would withdraw as a candidate in Italy's coming election if outgoing Prime Minister Mario Monti ran as the head of a "moderate" coalition.
The dollar also weakened broadly against higher-yielding currencies such as the Australian and New Zealand dollars.
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said the scope for further dollar losses may be somewhat limited, given investor concern about the U.S. "fiscal cliff," which could boost the safe-haven dollar.
U.S. House of Representatives Speaker John Boehner said on Wednesday "serious differences" remain with President Barack Obama in talks to avert the steep tax hikes and budget cuts set for the new year.
"Uncertainty about the euro zone, concerns about Italy and the Japan election this weekend should also limit dollar losses," Esiner said.
The dollar rose to an eight-month high of 83.29 yen and was last up 0.9 percent at 83.24 on bets the Bank of Japan will implement more aggressive monetary easing after an election on Sunday expected to yield a victory for the Liberal Democratic Party.
The benchmark 10-year U.S. Treasury note was down 12/32 in price, the yield at 1.6971 percent.
"By having a relatively high threshold at 6.5 percent unemployment, it is really an unchanged policy stance," said Ira Jersey, an interest rate strategist at Credit Suisse in New York.
"They are basically taking out the same amount of duration that they were in Twist, but they are buying less in the long-end than they had been before," he said.
Oil prices rose. Brent crude futures were up $2.02 to $110.03 a barrel. U.S. crude was up $1.37 at $87.16 a barrel.
Spot gold was up 0.6 percent at $1,720.20 an ounce after the Fed decision bolstered its inflation-hedge appeal.
The Associated Press and Reuters contributed to this report.