Indices fall as antsy investors await Fed Reserve meeting

NEW YORK (AP):

Stock retreated yesterday as investors grew more cautious before the Federal Reserve's policy meeting and after reports that showed economic growth slowing in the United States (US) and China.

The Dow Jones industrial average fell nearly 125 points in morning trading. Broader indices also fell.

Overseas markets stumbled after Chinese trade figures showed a steep slowdown in the growth rate of the country's imports. China is considered a country that could help offset slowing demand for goods in the US.

Waning growth in the US will be the primary topic at the Fed meeting. Investors will be closely reading the statement the Fed puts out afterward to assess the central bank's view of the recovery. They also want to know if the Fed plans to restart stimulus programmes to help the recovery regain momentum.

Chairman Ben Bernanke said a few weeks ago that the recovery's pace is "unusually uncertain", which spooked investors. Earnings and economic reports over the past couple of months have painted a mixed picture of the economy's health. Earnings have been very strong and companies have become more upbeat, but economic data continues to point toward a slowdown.

A report from the labour department said productivity fell 0.9 per cent in the second quarter. That's worse than the 0.2 per cent growth that had been forecast by economists polled by Thomson Reuters.

Oliver Pursche, executive vice-president at Gary Goldberg Financial in Suffern, New York, said the drop in productivity should be positive over the long term for the economy, because companies may start hiring again, but it could still hurt stocks in the short term.

"Productivity slowdown signifies that increased efficiencies have come to an end," Pursche said.

Unemployment problem

If employers continue to avoid hiring new workers, and current staff has reached maximum efficiency, there may be little room for earnings growth, Pursche said. Private-employer hiring rose less than expected last month and high unemployment is still considered one of the biggest obstacles hindering a strong recovery.

A separate report from the commerce department provided more evidence that the economy is slowing. Wholesale inventories rose just 0.1 per cent in June. Economists polled by Thomson Reuters expected inventories rose 0.4 per cent in June, after rising 0.5 per cent in May. Falling inventories suggests companies are not buying as many goods to stock shelves because shoppers are cutting back on spending.

In morning trading, the Dow fell 122.16, or 1.1 per cent, to 10,576.59. The Standard & Poor's 500 index fell 13.79, or 1.2 per cent, to 1,114.00, while the Nasdaq composite index fell 37.60, or 1.6 per cent, to 2,268.09.

About seven stocks fell for every one that rose on the New York Stock Exchange, where volume came to 120.6 million shares.

Stocks rose Monday on growing expectations that the Fed would implement, or at least hint, that it plans to restart some stimulus programmes that it let expire earlier this year when the economy looked to be recovering more strongly.

One widely speculated option would have the Fed take money it received from selling mortgage-backed securities it bought under previous programmes to buy Treasury bonds.

Bond prices traded in a tight range yesterday. The yield on the benchmark 10-year Treasury note rose to 2.84 per cent from 2.83 per cent late Monday. It's currently hovering around levels last seen in April 2009 when the stock market was in the early stages of a huge rally off 12-year lows.