updated 2/1/2006 10:20:55 AM ET 2006-02-01T15:20:55

Disappointed 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.

Major Market Indices

In its statement accompanying the quarter-point increase in rates, the central bank 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.

Stock indexes were already down ahead of the Fed’s decision — the last 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 measured rate hikes is over.

“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.”

Separately, the Dow Jones industrials were under pressure after component Altria Group Inc. missed Wall Street’s profit expectations for the fourth quarter, though that news was offset by strong profits at drugmaker Merck & Co .

The Dow Jones industrial average finished the day down 35.06 points, or 0.32 percent, while the broader Standard & Poor’s 500-stock index was off 5.12 points, or 0.40 percent. The Nasdaq composite index, full of tech stocks, lost 0.96 point, or 0.04 percent.

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 crude oil production.

Rising energy prices could be one reason why the Fed is keeping its options open, analysts said. 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 run-up 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.

Altria 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 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. 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.

Google Inc. added $5.84 to $432.66 for the session prior to releasing its fourth-quarter results, which were released after the close of trading .

Napster Inc. 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 .

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 and Germany’s DAX index climbed 0.25 percent.

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