Fed update helps to limit Wall St’s losses

US stocks fell one per cent but ended far from session lows yesterday on the Federal Reserve’s more upbeat economic view and growing sentiment that Japan’s nuclear crisis would only temporarily depress shares.

In a second straight day of losses tied to Japan, the S&P 500 fell to within four points of support at 1,257, its 2010 close.

The benchmark index fell more than two per cent in early trading and the Nasdaq briefly turned negative for the year.

Equities nearly halved their losses after the Fed stuck with its ultra-loose monetary policy and said the economy was gaining traction.

The Dow Jones industrial average was down 137.74 points, or 1.15 per cent, at 11,855.42. The Standard & Poor’s 500 Index was down 14.52 points, or 1.12 per cent, at 1,281.87. The Nasdaq Composite Index was down 33.64 points, or 1.25 per cent, at 2,667.33.

Volume was high, with about 10.05bn shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above last year's daily average of 8.47bn.

Options activity on the iShares MSCI Japan Index fund suggested that some investors believe the selloff since Japan’s worst recorded earthquake was overdone. The investors closed out recent long put positions or opened bullish bets.

The fund, which has a market cap of about $5.58bn, ended 0.2 per cent lower on record high volume and was the most actively traded ETF.

“While the outlook of nuclear accidents is justifiably scary, other nuclear issues have had small impacts on US stocks and that’s the most likely scenario here,” said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Global Investments, which has about $650bn in assets under management.

“It is our view at this stage that there shouldn’t be sustained disruptions, and this shouldn’t be more than a short-term drag on the United States.”

Dollar-denominated Nikkei futures fell 4.9 per cent and are down more than 10 per cent for the year.