NEW YORK (REUTERS) - United States (US) stocks dropped more than 1 per cent on Wednesday, hitting session lows after the Federal Reserve stuck with its plan to scale back stimulus even in the midst of emerging market turmoil.
Trading was volatile after the Fed's move, which further reduces its monthly bond purchases by US$10 billion (S$12.7 billion) a month.
Declines were fairly broad-based, with nine of the 10 S&P 500 sector indexes ending lower. Shares of Boeing Co ranked among the biggest drags on both the Dow and the S&P 500.
Overall improvement in the US economy suggested the central bank would continue to cut the purchases, but some investors had speculated in recent days that the Fed might rethink its plan because of the emerging market problems.
"I think investors had hoped that the Fed would somehow respond to the recent turbulence and show they had their back,"said Mr Jack Ablin, chief investment officer of BMO Private Bank in Chicago.
But the Fed really wants "to move to the sidelines here and get out of the QE business." In its announcement, the Fed said it would buy US$65 billion in bonds per month starting in February, down from US$75 billion now. In what was Fed chairman Ben Bernanke's last policy-setting meeting, the central bank also maintained its longer-term plan to keep US interest rates low for some time to come.
The Dow Jones industrial average fell 189.77 points or 1.19 per cent, to end at 15,738.79. The S&P 500 lost 18.30 points or 1.02 per cent, to finish at 1,774.20. The Nasdaq Composite dropped 46.529 points or 1.14 per cent, to close at 4,051.434.
The CBOE Volatility Index or VIX, Wall Street's barometer of fear, jumped 9.81 per cent to end at 17.35.
The benchmark S&P 500 has lost ground in four of the past five sessions as fears over slowing growth in China and large capital outflows from developing markets prompted investors to seek safe-haven assets.
The Fed's quantitative easing programme has supported not just the US economy but overseas economies as well by increasing liquidity, so cutting the stimulus has been a big factor in the emerging markets' sell-off.
Stocks were lower early in the session even after bold efforts by Turkey and South Africa to stabilise their currencies.
South Africa's central bank raised interest rates for the first time in six years. Its move followed a dramatic rate hike by Turkey's central bank late on Tuesday, designed to defend its crumbling currency.
Boeing's stock fell 5.3 per cent to close at US$129.78, though the company reported a surge in quarterly profit.
Yahoo shares dropped 8.7 per cent to end at US$34.89, a day after it reported a decline in online ad prices that hurt its revenue for a fourth consecutive quarter.
Among other profit reports, Dow Chemical Co posted a quarterly profit that was well ahead of expectations. It also raised its dividend 15 per cent and expanded its stock-buyback programme. Dow Chemical's stock rose 3.9 per cent to end at US$44.73.
Volume was higher than average for the month. About 7.5 billion shares changed hands on US exchanges, compared with the average of 6.8 billion so far this month, according to data from BATS Global Markets.
Decliners outnumbered advancers on the New York Stock Exchange and the Nasdaq by slightly more than 3 to 1.