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U.S. stocks pare losses
After plunging by as much as 2 percent earlier in trading, the S&P 500 Index recovered to trade down 0.4 percent for the day at 1,585.47 at 2:51 p.m. in New York, according to Bloomberg. The S&P was experiencing robust trading volume at this point in the session, as this activity was 39 percent above the 30-day average at this time.
Earlier in the day, the benchmark group of stocks plunged to its lowest in nine weeks, as market participants were impacted by concerns about the economic strength of China, which is the world's second-largest economy, the media outlet reports.
In afternoon trading, the Dow Jones Industrial Average was also lower, trading down 0.3 percent at 14,755.36, according to the news source.
MarketWatch reports that this group of stocks also experienced sharp declines at the beginning of the session, as it plunged almost 250 points. The Dow fell to was low as 14,551.27.
Statements of Fed official
Bloomberg reports that these key groups of stocks largely recovered as a result of statements made by Federal Reserve Bank of Dallas President Richard Fisher, who indicated that global market participants should not react too strongly to the potential future reduction of these bond purchases.
He made these statements after Bernanke stated during the week before that the current regimen of bond purchases could be lowered in the next few years depending on business conditions. When speaking with the press, the head of the Federal Reserve said that it is possible that quantitative easing will be lowered this year and cut off entirely next year. Any such decisions will of course depend on key economic indicators such as the labor market and inflation.
In an interview with The Financial Times, Fisher stated that investors had much too strong a reaction after Bernanke made his statements on June 19.
The way that investors reacted was illustrated by the sharp decline in the S&P 500 during the week ending on June 21, which was largely attributed to statements that Federal Reserve Chairman Ben Bernanke made after the conclusion of the latest Federal Open Market Committee, MarketWatch reports.
Michael James, a managing director of equity trading at Los Angeles-based Wedbush Securities Inc. told Bloomberg in a phone interview that the statements made by Fisher helped to counter the sentiment that was created when Bernanke announced the plans of the Federal Reserve.
"Fisher's comments seemed to dial back some of the negative rhetoric that people had in terms of Chairman Bernanke's comments last week," James told the news source. "This remains a trader and sentiment-driven market that's susceptible to swings in either direction at the drop of hat."
The Federal Reserve is currently buying $85 billion worth of bonds every month, and has been purchasing assets at this rate since last year. In addition, the central bank has been keeping its benchmark interest rates close to record lows. The objective of this stimulus is to invigorate the economy and improve the labor market.
"Investors have been shaken by the concept of rising interest rates and a reduction in stimulus from the Federal Reserve, coupled with the uncertainty regarding effectively how robust the Chinese central banking system is," Ethan Anderson, senior portfolio manager for Grand Rapids, Michigan-based Rehmann Financial in, told the news source by telephone.
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