By Kristina Peterson
NEW YORK—U.S. stocks wiped out much of Tuesday's early losses after the Federal Reserve said it would tweak its portfolio strategy to help spur the U.S. economic recovery.
Stocks pared their decline, with the Dow Jones Industrial Average roughly halving its earlier triple-digit loss after the Federal Open Market Committee said in a statement it would reinvest the proceeds from expiring mortgage-backed securities into longer-term U.S. Treasurys. The move should help a weakening economy by keeping mortgage rates low.
The Dow Jones Industrial Average was down 52 points, or 0.5%, to 10646. The Standard & Poor's 500-share index fell 0.7% to 1121, while the Nasdaq Composite fell 1.4% to 2273.
The market remained in the red as investors continued to digest data pointing to slowing demand in China
Materials stocks tumbled, as weaker-than-expected Chinese trade data stoked fears that demand for U.S. raw materials could ebb. Chinese imports rose 22.7%, showing a bigger-than-expected deceleration in import growth. Alcoa /zigman2/quotes/200686102/composite AA -1.28% tumbled 3.3%, AK Steel fell 4.18% and United States Steel /zigman2/quotes/200069642/composite X +0.57% shed 2.5%.
Among other stocks, bond insurer MBIA /zigman2/quotes/205815173/composite MBI +1.66% rose 5.4% after its second-quarter earnings climbed 44% on big gains in the fair value of insured derivatives.
AgFeed Industries, one of China's largest independent hog producers, dropped 8.3%, as it swung to a second-quarter loss. Floods in China damaged its infrastructure and pushed up operating expenses.
Shares retreated on weak Chinese trade data and nervousness ahead of the Fed announcement.
The Stoxx Europe 600 index closed down 0.9% at 259.93, its third loss in four sessions. The U.K.'s FTSE 100 index fell 0.6% to 5376.41, France's CAC-40 index lost 1.2% to 3730.58, and Germany's DAX dropped 1% to 6286.25.
Basic-resource shares dropped amid fears of weaker Chinese consumption. Vedanta Resources fell 4%, BHP Billiton /zigman2/quotes/208108397/composite BHP -0.49% dropped 2.3%, Xstrata shed 2.9% and ArcelorMittal lost 1.4%.
TUI Travel /zigman2/quotes/206714402/delayed DE:TUI1 +2.58% skidded 10% after it warned that its full-year results would be hit by a sharp slowdown in bookings from the U.K. InterContinental Hotels Group lost 4.1%, despite saying that room rates, which fell significantly during the recession, have started to rise in most markets.
Hannover Re lost 6.1% on a drop in quarterly earnings and investor doubts about the company's ability to reach its full-year profit target.