June 11, 2013 at 4:16 PM ET
Stocks finished sharply lower in volatile trading on Tuesday, with all key S&P sectors closing in the red, as the Bank of Japan's latest monetary policy decision disappointed investors.
"Everything's driven by interest rates—there's been a lot of back and forth today as a result," said Brian Battle, vice president of trading at Performance Trust Capital Partners.
The Dow Jones Industrial Average fell at the opening, then rebounded before falling again in the afternoon, to close down 116 points at 15,122.02. Microsoft and Alcoa led the blue-chip laggards, while Pfizer gained.
All key S&P sectors closed lower, led by banks and energy.
"We started the day knowing that the global markets were disappointed in Japan. But it feels that in the short run, we have a market that perhaps overreacted to the global emerging market selloff and is finding some people on the sidelines that want to put money into work," said Art Hogan, managing director at Lazard Capital Markets.
The Bank of Japan kept interest rates and its asset-buying program unchanged, and refrained from introducing new measures to ease market volatility, citing signs of economic recovery. The Japanese Nikkei dropped more than 1 percent, while European markets were also in the red. And the yen rose more than 2 percent to near 97 against the U.S. dollar following the announcement.
Stock markets in Thailand, the Philippines, Indonesia and other Asian markets tumbled to lows last seen in April.
"The BOJ is sending the message that at the end of the day it's a central bank and will not pander to the markets too much," said Vishnu Varathan, market economist at Mizuho Corporate Bank.
Meanwhile, European Central Bank President Mario Draghi said that the central bank will not resort to "higher inflation rates" to resolve the euro zone debt crisis, and will only "intervene" in the bond markets in certain circumstances. His comments come as Germany's constitutional court began a two-day hearing on the legality of the ECB's bond-buying program, which has played a large role in calming financial markets.
On Monday, credit ratings agency Standard & Poor's upgraded its outlook for the U.S. to "stable," highlighting the relatively favorable growth outlook. Still, the stock market largely ignored the endorsement, with major averages closing near the flatline in choppy trading amid worries over when the Fed might scale back its stimulus program.
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Earlier, former World Bank President Robert Zoellik told CNBC that the rolling back of the Fed's asset purchasing program could prove a major issue for countries across the globe.
"[Fed] tapering is a big issue I think for all economies—the U.S., Europe, China, Southeast Asia—the fundamentals still go back to structural reforms," Zoellick said.
On the economic front, wholesale inventories rose 0.2 percent in April, according to the Commerce Department, in line with expectations. Inventories are a key component of gross domestic product changes. Excluding autos, inventories were flat.
Treasury prices weakened after the government auctioned $32 billion in 3-year notes at a high yield of 0.581 percent. The bid-to-cover, an indicator of demand, was 2.95.
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