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Stocks Close Mixed Amid Lack Of Significant Change In Fed Outlook - U.S. Commentary

Stocks sputtered to a mixed close on Tuesday, as a lack of substantial change in the economic outlook provided by the Federal Reserve's March minutes limited trading enthusiasm. The major averages ended on opposite sides of the unchanged mark after yesterday's solid gains.

In the release of its March minutes, the Fed said that meeting participants agreed that economic activity continued to strengthen and that the labor market appeared to be stabilizing.

While the data on economic activity received since the January meeting was somewhat mixed, the members of the committee felt that it generally confirmed that the economic recovery was likely to proceed at a moderate pace.

Further, the Fed noted that rates would remain low for a period dictated by economic conditions, not a specific amount of calendar time. Some had speculated the oft used "extended period" phrase meant six months.

In other Fed news, Minneapolis Fed President Narayana Kocherlakota said that the economic recovery will continue to be subdued through 2010.

The Minnesota Fed chief stated that a poor banking sector performance is likely to limit GDP, as commercial real estate losses may slow lending.

In regards to the job market, Kocherlakota said that unemployment is expected to remain high and an unemployment rate below 9 percent by the end of 2010 is unlikely.

Earlier, the focus was on corporate news, with the U.S. government proposing a record civil penalty of $16.375 million against automaker Toyota Motor Corp. (TM) for failing to promptly notify regulators of defective gas pedals in its vehicles.

The proposed fine is the maximum allowed under U.S. law against a car maker and marks the first time the world's largest automaker has been accused by the government of breaking the law.

The major averages all saw choppy movement in late session dealing, ending on opposite sides of the unchanged mark. The Dow slid by 3.56 points or less than 0.1 percent to end at 10,969.99, while the Nasdaq advanced by 7.28 points or 0.3 percent to 2,436.81 and the S&P 500 rose by 1.99 points or 0.2 percent to 1,189.43.

Sector News

Banking stocks saw some of the day's strongest gains, propelling the Kbw Bank Index up by 2.4 percent. The index moved higher for a fourth straight session and saw its best closing price in seventeen months.

Banks with holdings in commercial real estate investment trusts boosted the banking sector today after RBC Capital Markets upgraded REITs BRE Properties Inc. (BRE), UDR Inc. (UDR), Apartment Investment & Management Co. (AIV) and Camden Property Trust (CPT).

The strong advance by the REIT stocks resulted in a 2.1 percent gain by the Morgan Stanley REIT Index, which ended at an eighteen-month closing high.

Networking stocks also moved notably higher on the day, with the NYSE Arca Networking Index advancing by 1 percent. The upward move lifted the index to its best closing level in over two years.

Meanwhile, moderate weakness was visible among housing stocks, which dragged the Philadelphia Housing Sector Index down by 0.8 percent. With the decline, the index pulled back off of the eighteen-month closing high set yesterday.

Semiconductor, gold and pharmaceutical stocks also moved lower, offsetting the gains in the other market segments.

Dow Components

Alcoa (AA) was the leading percentage gainer in the Dow, posting a gain of 2 percent. The advance lifted the stock a fresh two-month closing high.

Bank of America (BAC) also rose on the day, climbing by 2 percent. Shares of the banking giant saw their best closing level in nearly six months.

JP Morgan Chase (JPM) and American Express (AXP) also rose, further reflecting today's strength in financials, while weakness was visible among shares of Travelers (TRV) which fell by 1.4 percent. The pullback took the stock further off of last week's more than two-year closing high.

Coca-Cola (KO), Procter & Gamble (PG) and Intel (INTC) were also under pressure, contributing to the modest loss posted by the blue chip index.

Other Markets

Overseas, stock markets across the Asia-Pacific region closed mostly higher on Tuesday, although Japan's benchmark Nikkei 225 Index bucked the uptrend. Hong Kong's markets remained closed for trading on the day.

The major European markets also finished on the upside. The U.K.'s FTSE 100 Index rose by 0.6 percent, while the French CAC 40 Index and the German DAX Index gained 0.5 percent and 0.3 percent, respectively.

In the bond markets, treasuries closed moderately higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.968 percent, sliding by 2.6 basis points.

Looking Ahead

Wednesday, the markets are likely to focus on comments from Federal Reserve Chairman Ben Bernanke on economic challenges and the consumer credit report for February.

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