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Misgivings about Fed plan spark sell-off

US stocks fell yesterday on concerns that the Federal Reserve's latest efforts to stem the US recession are too costly and untested, prompting investors to book profits on bank shares after the recent sharp rally.

Investors were unsettled by the implications of the Fed's action to pump another US$1 trillion into the financial system and a plan to expand its consumer and small business lending program, fearing the moves could stir up inflation in the long term.

Financials led the S&P lower, including JPMorgan, down 8 percent at US$24.95, as some investors opted to take their money off the table. The KBW Bank index, up 11 percent on Wednesday, slid 9.1 percent.

"Are they able to pull it off? Is it too aggressive in terms of leveraging the balance sheet?" asked David Katz, chief investment officer of Matrix Asset Advisors, in New York.

Diversified manufacturer 3M was among the Dow's biggest drags, down 3.5 percent at US$47.47, after brokerage Bernstein cut its price target on 3M's stock, saying the company will likely see its worst annual growth in nearly 40 years in 2009.

The Dow Jones industrial average fell 85.78 points, or 1.15 percent, to 7,400.80. The Standard & Poor's 500 Index lost 10.31 points, or 1.30 percent, to 784.04. The Nasdaq Composite Index shed 7.74 points, or 0.52 percent, to 1,483.48.

On Wednesday, the Fed revealed its latest plan to stabilize the recession-hit economy, saying it will purchase longer-term government debt, which it has not done since the 1960s. The aim is to raise the supply of credit, pushing down longer-term rates on mortgages and other loans.

Citigroup tumbled 15.6 percent to US$2.60 after it said it may conduct a reverse stock split as part of an exchange offer that could give the US government a 36 percent stake in the bank.

The Nasdaq performed better than the other two main indexes with its declines offset by a rise in shares of Oracle Corp after the business software maker reported results that beat forecasts.

Oracle's stock climbed 9.7 percent to US$17.37.

A weaker dollar following the Fed's action on Wednesday also helped boost commodity prices and lift shares in the energy and materials sectors, cushioning the market.

Shares of Chevron added 0.8 percent to US$67.13 as US front-month crude settled up at US$51.61 a barrel, up US$3.47, or 7.2 percent.

In economic news, the number of US workers drawing continuous state unemployment benefits hit a fresh record high early this month, according to government data that highlighted the difficulties of finding jobs in the recession-hit economy.

Shares of package delivery giant FedEx Corp rose 4.8 percent to US$45.10 after the economic bellwether said it was taking market share despite a recession that has sharply dented its profits.

Since bouncing off fresh 12-year intraday lows in early March, the broad S&P 500 has gained 17.6 percent, but remains down more than 13 percent for the year.

Trading was active on the New York Stock Exchange, with about 1.95 billion shares changing hands, above last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.35 billion shares traded, above last year's daily average of 2.28 billion.

Declining stocks only slightly outnumbered advancing ones on the NYSE by 1,557 to 1,525, while on the Nasdaq, five stocks fell for every four that rose.


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