Wall Street erases losses on Fed

US stocks found little direction in choppy trading after the Federal Reserve offered a mixed view on the economy.

At the closing bell, the Dow Jones Industrial Average fell 31.75 points, or 0.2%, to end at 16,880.36. The S&P 500 index ended little changed, tacking on 0.12 point, less than 0.1%, to 1,970.07, while the Nasdaq Composite Index rose 20.20 points, or 0.5%, to 4,462.90.

The Federal Reserve said it would reduce its purchases of mortgage and Treasury bonds to $US25 billion ($26.7bn) monthly, as widely expected.

But stocks swung between small gains and losses in afternoon trading as investors parsed the Fed statement to determine when, and how, the Fed might raise short-term interest rates.

The announcement indicated that officials are becoming less worried about low inflation, which is seen as a more hawkish stance, according to Dan Greenhaus, chief strategist at New York brokerage firm BTIG. But the Fed's description of the US economy and the labour market balanced out that view, he added.

Treasury bonds initially pared losses in the wake of the statement. Still, the yield on the 10-year note closed with its biggest single-session gain since November, at 2.556%. The high-yielding utilities, consumer staples and telecommunications sectors weighed on the S&P 500, losing 1.6%, 1% and 0.6%, respectively.

Traders had been concerned that language in the statement would indicate the Fed was leaning toward raising rates sooner than many expected. That didn't happen, QS Investments portfolio manager Wayne Lin said.

"What they're trying to do is just take their foot off the gas -- not step on the brake -- and just let it cruise for a while," he said.

Michael Antonelli, a sales trader with Robert W Baird, said he didn't see overwhelmingly bullish or bearish trading from his firm's clients after the announcement. "We got a lot of flows on both sides," he said.

On Wednesday morning, data showed that the US economy expanded at a seasonally adjusted annual rate of 4% in the second quarter, exceeding expectations for a 3% pace. The news initially sparked gains, though stocks turned lower ahead of the Fed statement.

Broadly, investors have been debating whether stronger economic growth is good for stocks. If growth prompts the Fed to raise short-term interest rates sooner than expected, some say, stocks could see short-term declines.

"It doesn't impact earnings, but it will impact the [price] people are willing to pay" for stocks, according to Andrew Slimmon, who helps manage $US4bn as a managing director at a unit of Morgan Stanley Wealth Management.

Some investors cautioned that the GDP report is subject to revisions, and that wage pressure remains contained, allowing the Fed to be patient in raising rates.

"Today's data represent progress," Tony Crescenzi, senior market strategist at Pacific Investment Management Co, said. But a "pickup in wages would be more of a game changer" for the Fed's rate policy, rather than a pickup in growth.

In other economic news, Automatic Data Processing and Moody's Analytics said the private sector added 218,000 jobs in July. Economists had expected a gain of 238,000 jobs. The report is seen as a preview to the closely watched government employment report, due Friday.

Social media stocks gained, as shares of Twitter rallied 20% after a strong quarterly report. The company reported second quarter revenue that more than doubled and posted its second consecutive quarter of accelerating user growth, reassuring investors about the service's popularity.

Broadly, companies in the S&P 500 are on pace to grow their second-quarter earnings by 6.7% from last year, according to FactSet. They are on track for sales growth of 3.5%.

Amgen 5.4% after its revenue and adjusted earnings beat forecasts and it lifted its forecasts for the year. It said it intends to cut its workforce by 12% to 15% and close facilities in two states, as it aims to concentrate resources on developing new drugs.

Garmin slipped 5.5% despite posting stronger-than-expected second quarter earnings and lifting its outlook for the year. The stock is up 18% so far this year.

US-listed shares of AstraZeneca rose 0.4% after the company agreed to buy the rights to a portfolio of inhaled drugs from Almirall. The deal is worth up to $US2.1bn.

Overseas, the Stoxx Europe 600 index fell 0.5%.

In commodity markets, gold futures slipped 0.3% to $US1,294.90 an ounce and crude-oil futures shed 0.7% to $US100.27 a barrel.