Wall Street slumps on Fed taper

United States stocks closed sharply lower after the US Federal Reserve announced plans to again reduce the size of its bond-buying program by $US10 billion.

Investors were also seen cautious on fresh worries about emerging market economies.

Crisis-hit South Africa and Turkey, which have both seen their currencies plummet over the past twelve months, raised rates yesterday in a bid to ward off selling pressure. However, while the measures forced their currencies higher initially, it wasn't long before they started trending lower once more.

At the closing bell, the Dow Jones Industrial Average slumped 189.77 points, or 1.19%, to 15,738.79.

The broad-based S&P 500 fell 18.30 points, or 1.02%, to 1,774.20, while the tech-heavy Nasdaq Composite Index declined 46.53 points, or 1.14%, to 4,051.43.

Markets traded down over 0.5% for most of the day, though the losses were extended on the release of the latest policy update from the Fed.

While the bond-buying program was cut back to $US65 billion on signs of economic improvement, the US central bank pledged to retain low rates for an extended period.

The Fed in December announced plans to begin scaling back the program from $US85 billion to $US75 billion.

There was little in the way of economic data, with investors taking some direction from the latest batch of earnings results instead. US aircraft maker Boeing Co joined Dow Chemical in reporting better-than-expected numbers, while Chrysler also saw a surge in profit thanks largely to tax benefits.

In Europe, investors were cheered by news of German consumer sentiment hitting a fresh six-year high and British house prices rising 8.8%, though weak private sector lending in the eurozone was a cause of concern.