Stocks fall, dollar pares losses after Fed decision

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks mostly fell while the dollar cut its losses on Wednesday after the Federal Reserve delivered a widely expected U.S. interest rate hike.

A slide in technology stocks weighed on the Nasdaq and S&P 500 as investors worried about the pace of economic growth after the rate increase and weaker-than-expected inflation data.

The U.S. central bank lifted the benchmark lending rate by a quarter percentage point, its second quarter-point hike this year, and said it would begin cutting its huge holdings of bonds and securities this year.

Fed policy makers also signaled they were likely to raise rates once more this year.

That helped to lift yields on U.S. two-year notes from their lows of the day. Long-dated Treasury yields though tumbled to their lowest since early November, thanks to the weak inflation and other economic data.

"It just looks like the Fed is sticking to their story and the market remains highly skeptical that the Fed is going to be able to deliver just based upon underlying data. I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly," said Mark Cabana, head of U.S. short rates strategy at Bank of America Merrill Lynch in New York.

The U.S. yield curve flattened, with the difference between short-dated two-year Treasury yields and benchmark 10-year yields narrowing to a difference of 78.58 basis points , the smallest since Sept. 9.

U.S. 10-year yields were last at 2.127 percent after touching 2.103 percent earlier, their lowest since Nov. 10. U.S. two-yields were last at 1.335 percent, down 3 basis points on the day.

The dollar index <.DXY> was last down 0.06 percent, with the euro unchanged at $1.1214.

A Reuters poll showed Wall Street's top banks see Fed policymakers raising the bank's key overnight borrowing rate one more time by the end of 2017 and three times in 2018.

OIL TUMBLES

Crude oil prices fell sharply following an unexpectedly large buildup in gasoline stocks. That weighed heavily on U.S. energy sector shares, which contributed to the S&P 500's decline.

The Dow Jones Industrial Average <.DJI> was up 46.09 points, or 0.22 percent, to end at 21,374.56, the S&P 500 <.SPX> lost 2.43 points, or 0.10 percent, to 2,437.92 and the Nasdaq Composite <.IXIC> dropped 25.48 points, or 0.41 percent, to 6,194.89.

The pan-European FTSEurofirst 300 index <.FTEU3> lost 0.35 percent and MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.12 percent.

U.S. crude fell 3.7 percent to settle at $44.73 per barrel and Brent settled at $47.00, down 3.5 percent.

Gold turned negative after the Fed rate increase. Spot gold fell 0.2 percent at $1,263.03 an ounce.

(Additional reporting by Rodrigo Campos, Sam Forgione and Scott DiSavino in New York; Editing by Nick Zieminski and James Dalgleish)

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