* Global stocks slip as U.S. equities fall on Fed unease
* US dollar index higher but is still near 1-year low
* Oil drops 4.0 percent on surprise U.S. inventory build
* US bonds fall after 5-year Treasury sale but end higher
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 23 (Reuters) - The U.S. dollar rose, after
falling to a fresh 12 month low, and global stocks slipped on
fears the Federal Reserve may rein in its far-reaching efforts
to shore up a still weak U.S. economy earlier than expected.
Oil dropped nearly 4.0 percent to below $69 a barrel after
U.S. government data showed a big jump in crude and products
stockpiles, stirring concerns about demand in the world's top
energy consumer. []
The U.S. central bank, as widely expected, held overnight
lending rates at close to zero percent, and Fed policy-makers
reiterated their commitment to keep interest rates low for an
"extended" period.
But the Fed also said it would slow purchases of mortgage
debt to extend that program's life until the end of March, in a
step toward a measured withdrawal of its extraordinary support
for the economy during the worst U.S. downturn in 70 years.
Investors in U.S. equities took the news poorly, despite
the Fed's ascertion that conditions in financial markets have
improved and activity in the housing sector has increased.
Dan Faretta, senior market strategist at Lind-Waldock, a
retail brokerage in Chicago, said it's not a good time to start
winding down the Fed's program known as quantitative easing for
an economy that is still under the weather.
"I think maybe six months down the road it could be
something they could look at. There's still a lot of problems
with mortgages, the housing market in general as well as the
banking sector," Dan Faretta, senior market strategist at
Lind-Waldock, a retail brokerage in Chicago.
Reaction to the Fed statement turned the choppy U.S. equity
market lower.
The Dow Jones industrial average <> closed down 81.32
points, or 0.83 percent, at 9,748.55. The Standard & Poor's 500
Index <.SPX> was down 10.79 points, or 1.01 percent, at
1,060.87. The Nasdaq Composite Index <> was down 14.88
points, or 0.69 percent, at 2,131.42.
MSCI's all-country world index <.MIWD00000PUS> also
reversed course, falling 0.6 percent after earlier climbing to
a fresh almost 12-month high.
U.S. Treasury debt prices recovered smartly after Fed
policy-makers reiterated their commitment to keep interest
rates low for an "extended" period.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
8/32 in price to yield 3.42 percent.
"People were looking for something a bit more hawkish,"
said William O'Donnell, head of U.S. Treasury strategy at RBS
Securities.
U.S. crude <CLc1> fell $2.79 to settle at $68.97 a barrel,
while London Brent crude <LCOc1> fell $2.54 to settle at $67.99
a barrel.
The U.S. dollar fell to a one-year low against the euro and
dropped against the yen as the Fed's statement suggested a
recovering U.S. economy would ease its role as a safe-haven.
But the reversal in stocks later sent the dollar higher.
"Most people were expecting the Fed to upgrade its
assessment of the economy and they did that. The subsequent
attempt to extend the rally in (stocks) stalled and now we saw
the reversal," said Brian Dolan, chief currency strategist at
Forex.com in Bedminster, New Jersey.
The euro rose as high as $1.4842 <EUR=>, according to
Reuters data, its highest level since September 2008. It last
traded down 0.39 percent at at $1.4729.
Against the yen, the dollar was up to trade 0.22 percent at
91.33 yen <JPY=>.
The dollar index <.DXY>, which measures the dollar's value
against a basket of six other major currencies, was up 0.35
percent at 76.387, after falling to its lowest since Aug. 11,
2008.
Earlier, shares in Europe closed slightly higher but energy
stocks took the most points off the pan-European FTSEurofirst
300 <> index of top regional shares.
The FTSEurofirst 300 closed up 0.2 percent at 1,006.09
points.
The MSCI benchmark of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> was up 0.2 percent and reached a 13-month
high.
(Reporting by Ryan Vlastelica, Steven C. Johnson and Chris
Reese in New York and Joe Brock, Joanne Frearson and Ian Chua
in London; Writing by Herbert Lash; Editing by James
Dalgleish)
