* Stocks end lower but cut losses after Fed
* Fed to buy more long-term Treasuries
* Dollar loses safe-haven appeal after Fed signals
* Signs of slowing growth in China weigh on commodities
(Updates with closing prices)
By Manuela Badawy and Al Yoon
NEW YORK, Aug 10 (Reuters) - U.S. stocks lost ground but
finished the day well off earlier lows and government debt
rallied on Tuesday after the Federal Reserve signaled it would
act as necessary to preserve the fading economic recovery.
The dollar lost luster as a haven from risk declining
against the yen, while crude oil prices trimmed losses.
The Fed said it would begin funneling proceeds from its
maturing mortgage bonds into longer-term government debt in an
effort to support a sputtering economic recovery.
The move marks an important policy shift for the Fed, which
just months ago had been debating how to start winding up its
various monetary stimulus programs. Fed officials also offered
a gloomier outlook on the U.S. economy.
Strategists noted that reinvestment of mortgage proceeds
into long-dated Treasuries stops well short of more aggressive,
outright purchases of government or mortgage debt.
The U.S. central bank, which left benchmark overnight
interest rates steady in a range of zero to 0.25 percent, also
renewed its pledge to keep rates low for an extended period, as
widely expected.
The stock market's lukewarm response suggested investors
didn't believe the actions would have much immediate impact on
the weak labor market and consumer sector, two of the biggest
headwinds facing the recovery.
"The Fed is kind of caught in a spot where it isn't sure
what to do, so it went halfway," said Michael O'Rourke, chief
market strategist at BTIG LLC in New York. "This is an
insurance move, one it probably took grudgingly just to meet
market expectations."
Stocks and commodity prices earlier had slumped ahead of
the Fed's meeting and after a report of weak Chinese imports
triggered concern of slowing growth in China, which has been an
engine of growth for the world economy.
The Dow Jones industrial average <> ended down 54.50
points, or 0.51 percent, at 10,644.25. The Standard & Poor's
500 Index <.SPX> fell 6.73 points, or 0.60 percent, at
1,121.06. The Nasdaq Composite Index <> closed lower 28.52
points, or 1.24 percent, at 2,277.17.
The S&P rebounded back above its 200-day moving average.
All three major indexes had been down more than 1 percent
before the Fed's decision and on evidence that China's rapid
growth was easing.
The S&P materials index <.GSPM> ended down 1.0 percent and
the energy index <.GSPE> was off 0.8 percent.
In currency markets, the Fed's announcement weighed on the
dollar.
The downgrade to the economic outlook "is a problem for the
dollar in general," said Brian Dolan, chief strategist at
Forex.com in Bedminster, New Jersey, while the move to invest
in long-dated Treasury debt has pushed down U.S. bond yields,
making the dollar less attractive to global investors.
The euro was down 0.39 percent at $1.3181<EUR=>, after
falling as low as $1.3075 earlier. The dollar was down 0.65
percent at 85.36 yen <JPY=>, not far from a 15-year low around
84.81 yen. The dollar got support against the yen earlier after
the Bank of Japan held off on new steps to weaken the
currency.[]
FED MOVE STOKES BID FOR BONDS
U.S. Treasuries prices rallied, extending earlier gains,
after the Federal Reserve said it will deploy principal
payments from its mortgage holdings to buy long-dated
government debt.
The price on the 30-year U.S. government bond <US30YT=RR>
jumped 1-13/32 in the cash market. Its yield hit a session low
of 3.95 percent, compared with 4.02 percent late on Monday.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
19/32, with the yield at 2.7611 percent. The two-year U.S.
Treasury note <US2YT=RR> rose 1/32, with the yield at 0.5212
percent.
U.S. crude oil futures ended with pared losses after the
Fed's pledge to maintain its policy of low interest rates for
an extended period.
On the New York Mercantile Exchange, September crude <CLU0>
settled down $1.23, or 1.51 percent, at $80.25 a barrel. Before
the Fed announcement, crude prices were down about $1.80.
Oil prices were stung by a slowdown in oil imports by
China, the world's second largest energy consumer, which
underlined investors' fears that the global economic recovery
is losing momentum.[]
Although China's trade surplus surged in July to an
18-month high as exports rose, a government-induced slowdown in
investment took a toll on imports.
"China is certainly the global growth engine for almost all
parts of the world, especially to the United States. Their
macro data is influencing the psychology of investors of all
assets here," said Craig Peckham, equity trading strategist at
Jefferies & Co in New York.
World stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> dropped 1.2 percent, and the Thomson Reuters
global stock index <.TRXFLDGLPU> fell 1.2 percent.
The MSCI emerging markets benchmark <.MSCIEF> was down
1.18, with China's Shanghai Composite Index down 3 percent
after data showed Chinese import growth below expectations,
pointing to slowing domestic demand and economic activity.
In Europe, the FTSEurofirst 300<> index closed 0.9
percent lower ahead of the Fed's policy statement, with miners
falling heavily.
(Additional reporting by Chris Reese, Angela Moon and Wanfeng
Zhou; Editing by Leslie Adler)
