By Chuck Mikolajczak
NEW YORK (Reuters) - A gauge of global stocks fell on Wednesday while the dollar weakened against a basket of peers after the Federal Reserve left interest rates unchanged and indicated it is still leaning toward eventual rate cuts.
But the U.S. central bank put a red flag on recent disappointing inflation readings and suggested a possible stall in the movement toward more balance in the economy.
The Fed also announced plans to slow the speed of its balance sheet drawdown, after having spent much of the earlier part of the year warning of such a shift.
"As expected, the Federal Open Market Committee decided to keep its key interest rate, the federal funds rate, unchanged," said Matthais Scheiber, global head of portfolio management for the systematic edge team at Allspring Global Investments in London. "We believe the Fed won't cut rates until it sees weakening in prices and labor market data - probably not before fall."
On Wall Street, the S&P 500 closed slightly lower in choppy trading in the wake of the Fed's policy announcement, after each of the three major indexes closed out April with their first monthly declines since October.
The Dow Jones Industrial Average rose 87.37 points, or 0.23%, to 37,903.29, the S&P 500 lost 17.30 points, or 0.34%, to 5,018.39 and the Nasdaq Composite lost 52.34 points, or 0.33%, to 15,605.48.
Earlier, data from the ADP Employment report showed U.S. private payrolls increased more than expected in April while data for the prior month was revised higher.
But a separate report from the Bureau of Labor Statistics in its Job Openings and Labor Turnover Survey, or JOLTS, showed U.S. job openings fell to a three-year low in March, while the number of people quitting their jobs declined - indications of easing labor market conditions that could potentially aid the Fed in its fight against inflation.
Other data from the Institute for Supply Management pointed to continued sluggishness in U.S. manufacturing, which contracted in April amid a decline in orders after briefly expanding in the prior month.
The data comes ahead of the U.S. government's key employment report on Friday.
Markets have continued to dial back expectations for the timing and amount of rate cuts from the central bank this year, as inflation has proven to be sticky and the labor market remains on solid footing. After the policy statement, traders added to bets that the Fed will cut rates this year, likely in November.
MSCI's gauge of stocks across the globe fell 2.22 points, or 0.29%, to 754.39 after briefly turning higher after the Fed's statement.
Investors were also grappling with a deluge of U.S. corporate earnings, with Amazon.com up about 3% after its quarterly results, helping to lift the Dow.
The dollar index fell 0.19% at 106.12, following the Fed statement, after earlier reaching 106.49, the highest since April 16, with the euro up 0.23% at $1.0689.
Against the Japanese yen, the dollar weakened 0.18% at 157.52 while Sterling edged up 0.01% at $1.2491.
The yield on benchmark U.S. 10-year notes fell 5.4 basis points to 4.63%, from 4.684% late on Tuesday, and the 2-year note yield, which typically moves in step with interest rate expectations, fell 8.6 basis points to 4.9602%, from 5.046%.
European bond markets were closed for the May 1 holiday as were most stock markets in Europe and those in China, Hong Kong and much of Asia.
Of the stock markets that were trading, Britain's FTSE ended 0.28% lower, and Japan's Nikkei closed down 0.34%.
Oil prices fell for a third day on increasing hopes for a ceasefire agreement in the Middle East and extending declines after the U.S. EIA storage report.
U.S. crude settled down 3.58% to $79.00 a barrel, and Brent fell to $83.44 per barrel, settling down 3.35% on the day.
(Reporting by Chuck Mikolajczak; Editing by Emelia Sithole-Matarise, Will Dunham and Leslie Adler)
