US stocks dipped today as investors weighed the Federal Reserve's abrupt hike in the interest rate it charges banks for emergency loans, and benign consumer inflation data.
The Dow Jones Industrial Average fell 18.89 points (0.18 per cent) to 10,374.01 in early trades.
The technology-rich Nasdaq composite index dropped 4.69 points (0.21 per cent) to 2,237.02 and the broad-market Standard & Poor's 500 index shed 2.13 points (0.19 per cent) at 1,104.62.
"`We expect the stock and bond market reaction to the Fed announcement to be initially negative as investors see yesterday's action by the Fed as the first move in their strategy to normalise interest rates,'' said Fred Dickson of DA Davidson & Co.
The Fed announced after the market's closing bell yesterday that it was raising the rate on emergency loans to banks, known as the discount rate, by a quarter point to 0.75 per cent, effective today.
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In a statement, the Fed said its action was part of changes to terms of its so-called discount window lending programs "in light of continued improvement in financial market conditions''.
Some analysts pointed out that the move only surprised in terms of timing, noting that Fed chairman Ben Bernanke had already signalled that it was coming earlier in the month.
"The timing of the move is understandably stunning, but that does not mean it should have been considered surprising,'' said Patrick O'Hare at Briefing.com.
Investors also sifted through Labor Department data on January consumer prices showing they inched up a less than expected 0.2 per cent amid the sluggish recovery from recession.
So-called "core'' consumer prices - excluding food and energy - fell 0.1 per cent in the first decline in 27 years.
The market pullback came after stocks rallied for a third day yesterday despite a mixed batch of economic data and disappointing earnings guidance and soft sales from retail giant Wal-Mart.
The Dow advanced 0.81 per cent, the Nasdaq rose 0.69 per cent and the S&P 500 added 0.66 per cent.
Price drop means low interest ratesMarket down at close
