INSTANT VIEW: Fed extends Treasury buying to October

NEW YORK (Reuters) - The U.S. Federal Reserve said on Wednesday it will extend to the end of October a program to buy longer-term government securities, and it kept interest rates steady near zero as expected.

KEY POINTS: * The Fed slashed interest rates to a range of between zero and 0.25 percent in December and has pumped hundreds of billions of dollars into the economy to stimulate economic activity in the worst recession in decades. * In its statement, the Fed said that "information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out."

* The Fed noted that financial-market conditions have improved, while "household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit."

* The committee also said it will "the Committee has decided to gradually slow the pace" of its $300 billion in Treasury purchases, to be completed by October.

COMMENTS:

BILL O'NEILL, MANAGING PARTNER, LOGIC ADVISORS, UPPER SADDLE RIVER, NEW JERSEY:

"For gold, this is a totally neutral statement. It does show that the Fed is not going to change its interest rate policy. So, the longer that goes on, the longer you could have long-term inflation.

"The positive sign for the base metals is that the Fed will indefinitely continue the accommodative policy, and there is no indication that it will pull in the reins."

TERRY MORRIS, SENIOR VICE PRESIDENT AND SENIOR EQUITY MANAGER, NATIONAL PENN INVESTORS TRUST COMPANY, READING, PENNSYLVANIA:

"I figured it was just going to be a non-event and I'm not sure that anything came out of it. The market kind of ran up in anticipation, and now it's selling off a bit, kind of a 'buy the rumor, sell the news' kind of an idea. But I don't see or anything and haven't heard anything that makes it newsworthy, really. Sometimes when these things are so widely anticipated, it's already built into the market.

BURT WHITE, CHIEF INVESTMENT OFFICER, LPL FINANCIAL, BOSTON:

"Validating what the economic data as late has shown, the Fed essentially signaled to the market that this recession is over by changing its tone from contraction to leveling out.

"It didn't talk about economic growth but it certainly didn't talk about contraction, which is exactly what validates the news we got from ISM, the employment report, and GDP.

"The market wanted to hear the fact the Fed validated what the economic reports and data is showing."

"It's important they didn't remove. The market is fearful the Fed is going to take its foot off the gas and put it onto the brake."

DAVID WATT, SENIOR CURRENCY STRATEGIST, RBC CAPITAL MARKETS, TORONTO:

"The dollar was boosted across the board as people are focusing on the somewhat more hopeful outlook. But the Fed won't be moving the punch bowl away soon, as they're drawing the asset purchase plan out to October rather than letting it end in September as people expected. That reflects some caution, but it's hopeful that they didn't expand the program, which the Bank of England did do. They sort of split the difference, but it's an important split -- they won't expand the program but recognize that the economy still has vulnerabilities."

MITCH STAPLEY, CHIEF FIXED-INCOME OFFICER, FIFTH-THIRD ASSET MANAGEMENT, GRAND RAPIDS, MICHIGAN:

"You knew they were going to have start some of this sometime and the easiest thing to do is to start scaling back the Treasury bond purchase program. At some point, you have to acknowledge that things are getting better. The first step is to give the market an idea of what will be the first of many steps. There is a steeper curve but at the end of the day I don't think that should be too surprising. Everyone is questioning, 'how do we pull all this liquidity out?' This was a good first step. This is a little bit of Fed tough love."

JIM PAULSEN, CHIEF INVESTMENT OFFICER, WELLS CAPITAL MANAGEMENT, MINNEAPOLIS:

"They made a little more vote of confidence for the idea that the economy is certainly showing signs of bottoming out and starting to improve."

CARL BIRKELBACH, CHAIRMAN AND CEO, BIRKELBACH INVESTMENT SECURITIES, CHICAGO:

"It appears that the only words they changed were instead of saying 'the economy is leveling,' they said that it's stabilizing. Nothing else really changed and there were no big surprises.

"There's an indication that the Fed is well aware that the economy is starting to turn and of course that's good. They also indicated that they expect a gradual resumption of growth and of price stability. They said that last time, too, but those are good words. It means the economy is growing but inflation is not. But then they also said that the problem continues to be job losses, tight credit and home prices, all of which are expected to continue.

"As far as the Fed is concerned the economy is still weak but getting better. They feel they're on track with the economy and they expect a bit of the turn. Personally, I'm concerned about a 'W' next year when some of the stimulus packages start to end.

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM IN BEDMINSTER, NEW JERSEY:

"The initial reaction is that they're stepping back from their quantitative easing by not extending the Treasury purchase plan, one of the reasons dollar/yen is moving higher. I think we're going to get a little bit of a turnaround here. But I'd be looking for more dollar positive reaction out of this simply because a lack of extension to the Treasury buying plan represents the elimination of a dollar negative.

"Overall, they are showing some optimism here -- the U.S. economic activity is leveling out, but companies are still cutting investment and staffing, so very cautious outlook."

TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK PARTNERS, PRINCETON, N.J.:

"Steepening of the Treasury yield curve in response to the FOMC announcement reflects investors' concerns that Fed is willing to accept inflation risks. In other words, they want to promote asset inflation in terms of higher stocks and narrowing of credit spreads by keeping interest rates low for a considerable period of time. The Fed's announcement that they will gradually slow the purchase of Treasury notes and bonds takes one leg of support from underneath the Treasury market. We were also told that the Fed will end its program of purchasing Treasuries by the end of October, which means that a $300 billion of Treasury bonds will be gone in two months, with the deficit expected to be $1.27 trillion."

MARK VITNER, ECONOMIST, WELLS FARGO ADVISORS, CHARLOTTE, NORTH CAROLINA:

"It is not all that surprising, it acknowledges a lot of what we have been seeing, that conditions are stabilizing and the recession may be ending. They are not going to go that far in their statement, but it is consistent with that notion.

"Along those lines, they are not going to back off the ease that they have put in place all at once, they are going to try to smooth the transition from an aggressive monetary easing to a less aggressive easing. They are still going to be purchasing agency debt."

CRAIG THOMAS, SENIOR ECONOMIST, PNC FINANCIAL SERVICES, PITTSBURGH:

"It reflects the economy is bottoming out and improving in some areas. There is discussion in its asset purchases. They changed the Treasury purchase schedule to autumn to October. They are signaling the end of the quantitative easing will start in November."

"They see the worst with the economy is behind us but they don't want to jump the gun and pull back quickly. But they no longer have to be as aggressive with its quantitative easing, which I think is a positive."

DANIEL PENROD, SENIOR INDUSTRY ANALYST, CALIFORNIA CREDIT UNION LEAGUE, ONTARIO, CALIFORNIA:

"The Fed is still concerned with the weakness in the economy and doesn't see inflation coming anytime soon. Their purchases of securities have kept interest rates lower than they would have been otherwise. The fact that they are extending the timetable, but not the amount, of Treasury purchases shows that they are seeing some of the signs of the recovery that they're trying to create and want to let the earlier purchases season."

BRUCE MCCAIN, CHIEF INVESTMENT STRATEGIST, KEY PRIVATE BANK, CLEVELAND, OHIO:

"It seemed to me that Treasuries sold off particularly because of the acknowledgment that they are winding down that program: a lot of support for Treasuries has in fact come from those (Fed) purchases."

"It seems there is little good news for Treasuries owners."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BANK OF NEW YORK-MELLON, NEW YORK:

"I think there was more risk associated with early retirement of some of the Fed's credit-easing measures. But the Fed is not yet convinced that the economy is on solid ground, and Bernanke knows very well the risks associated with removing stimulus too quickly. The market had shifted its positioning going into the Fed decision and the dollar rally had given out while commodities rose. We'll be watching the yen crosses and the Dow from here."

BRET BARKER, PORTFOLIO MANAGER, METROPOLITAN WEST ASSET MANAGEMENT, LOS ANGELES:

"I wouldn't put this as an extension of quantitative easing. This is pretty much what the market expected. We knew the Treasury program was ending and it was going to end by September at this pace. So now, they will slow the pace and ease out of it and end by October."

MARKET REACTION: STOCKS: U.S. stock index rose on the news. BONDS: U.S. Treasury debt prices fell. DOLLAR: U.S. dollar rose against the euro and yen.