Major Stock Indexes Finish Session Mixed

Stock prices ended an uneasy session mostly lower Wednesday after the Federal Reserve suggested it might not be through raising interest rates if hikes are needed to fight inflation caused by soaring energy and commodity prices.

The Fed’s decision to boost a key short-term lending rate to 5% was widely anticipated. But investors were rattled by the central bank’s accompanying statement, which said more rate increases could be necessary to contain inflation. The Fed indicated that it would be closely watching economic data to determine its next step.

Investors had grown hopeful that recent signs of a cooling economy would prompt the Fed to stop lifting rates. The prospect of more increases, however, damped the market’s celebration and stocks briefly fell.

The Dow Jones industrial average edged up 2.88 points to 11,646.65. The index is less than 80 points from its record close of 11,722.98 on Jan. 14, 2000.

Broader stock indicators declined. The Standard & Poor’s 500 index fell 2.29 points, or 0.2%, to 1,322.85, and the Nasdaq composite index sank 17.51 points, or 0.7%, to 2,320.74.

The yield on the 10-year Treasury note was unchanged at 5.13%.

The chance for more rate increases weighed on the dollar, which weakened to 110.39 yen from 111.10 on Tuesday. The euro climbed to $1.279 from $1.275.

The greenback strengthened in early trading today in Asia after the U.S. Treasury stopped short of calling China a currency manipulator in a much-anticipated report. The report on currency practices was viewed in the market as positive for the dollar, especially against Asian currencies such as the yen, which is seen as a proxy for China’s yuan.

“The short-term fear of a dollar crash has gone,” said the chief trader at a European investment bank in Tokyo.

Gold futures, meanwhile, climbed past a 25-year high of $700 an ounce to close at $703.70, up $4.30.

Wednesday’s interest rate hike lifted the federal funds rate to 5%. It was the Fed’s 16th consecutive quarter-percentage-point raise since June 2004. The central bank began boosting rates from historical lows in an effort to cool an overheating economy and keep inflation in check.

Although investors have always been mindful of economic data, upcoming reports on wholesale and consumer prices, factory utilization and job growth could cause severe volatility in the next few weeks as Wall Street resumes its habit of trying to predict the Fed’s next interest rate move.

“If the economy doesn’t slow as expected or inflation becomes a bigger problem for financial markets, the Fed has stated that it won’t hesitate to start raising rates again,” said Michael Sheldon, chief market strategist at Spencer Clarke.

Crude oil futures rebounded Wednesday as worries about overseas supply cutoffs countered a weekly government report indicating increased oil and gasoline reserves and greater refinery output. A barrel of light crude gained $1.44 to $72.13 in New York trading.

In other market highlights:

* General Motors gained $1.04, or 4.1%, to $26.59 for the top gain in the Dow average. The company’s bonds were raised to “overweight” by CreditSights on optimism that GM’s former parts-making unit, Delphi, will reach an agreement with its unions on employee contracts.

* Cisco lost 93 cents to $20.75. After the market close Tuesday, Cisco predicted fourth-quarter sales growth below analyst estimates. Cisco’s drop led a gauge of computer-related shares down 1.1% for the biggest loss among 10 S&P; 500 groups.

* Disney rose 53 cents to $30.11 after its second-quarter profit, announced late Tuesday, beat some analysts’ expectations.