The Dow Jones Industrial Average dropped 108.00 points (1.21 per cent) to 8,816.14 in early trades and the tech-dominant Nasdaq fell 17.86 points (1.12 per cent) to 1,572.03.

The Standard & Poor's 500 broad-market index retreated 10.06 points (1.10 per cent) to 903.12.

On Tuesday, the Fed slashed its key federal funds rate to virtually zero for the first time and pledged extraordinary efforts to get credit flowing and stimulate the world's biggest economy, stuck in recession for the past year.

In a statement, the Fed said that weak economic conditions 'are likely to warrant exceptionally low levels of the federal funds rate for some time.' Wall Street cheered, sending the Dow up 4.20 per cent, the Nasdaq 5.41 per cent and the S&P 5.14 per cent.

'The market's reaction to the directive was decidedly bullish, but not above questioning considering the bleak economic outlook that was conveyed in the wording of the directive and the recognition that oil prices actually closed lower,' said Mr Patrick O'Hare at Briefing.com.

Mr O'Hare noted that if the rally had been rooted in optimism about the economic outlook, it would have made 'more sense' that oil prices would rise on the eve of an expected Opec oil cut.

'The lack of participation by oil, which would certainly see a pickup in demand from an improving economy, implied to us that short-covering was the major driver behind yesterday's rally,' he said. -- AFP