October 27, 2010 / 5:11 PM / 9 years ago

US STOCKS-Markets tumble on rethink of Fed stimulus

* Materials, energy shares weigh as commodity prices drop

* Broadcom rallies after outlook, limiting Nasdaq losses

* New home sales rise, durable goods orders fall

* Indexes off: Dow 1 pct, S&P 0.9 pct, Nasdaq 0.5 pct

* For up-to-the-minute market news see [STXNEWS/US] (Updates to midday, changes byline)

By Ryan Vlastelica

NEW YORK, Oct 27 (Reuters) - U.S. stocks tumbled on Wednesday as investors worried that markets had priced in too-optimistic expectations about how aggressively the Federal Reserve could stimulate the economy.

With the mid-term elections and a Fed meeting on tap for next week, traders also moved to guard against what could be an erratic period in equities.

Doubts over the Fed’s next move strengthened the U.S. dollar and pressured commodity prices, which in turn hit materials and energy stocks. The two groups were the biggest decliners among S&P sectors. Oil futures dropped 1.6 percent.

Among the biggest percentage decliners, Halliburton Co (HAL.N) fell 2.5 percent to $33.93, and Freeport McMoRan Copper & Gold Inc (FCX.N) slumped 4.1 percent to $94.28.

Expectations of large-scale U.S. Treasury bond purchases by the Fed have fueled market gains as investors bet more quantitative easing (QE2) will invigorate an economic recovery and lift asset prices.

But the Wall Street Journal reported the central bank is likely next week to unveil a program of purchases worth a few hundred billion dollars over several months, hoping to avoid a “shock and awe” approach. For details, see [ID:nN25168493] and [ID:nTOE69Q02H]

“There are a lot of reasons to not like the market right now,” said Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago. “We’ve come a long way, it looks like the Fed won’t ease as much as we thought, and while earnings are OK, future prospects look iffy.”

The Dow Jones industrial average .DJI slid 116.55 points, or 1.04 percent, at 11,052.91. The Standard & Poor's 500 Index .SPX was down 10.47 points, or 0.88 percent, at 1,175.17. The Nasdaq Composite Index .IXIC dropped 11.31 points, or 0.45 percent, at 2,485.98.

The CBOE Volatility index .VIX rose 9 percent and was up for the third consecutive day. The index, considered a gauge of investor fear, is up more than 10 percent over the past week.

“People are trying to figure out what they should be doing for the rest of the year with respect to performance of their portfolios versus risk,” said Scott Fullman, director of derivative investment strategy at WJB Capital Group in New York.

“The risk is on everybody’s mind, given the fact that the S&P 500 has appreciated 13 percent since the end of August and there is a lot of concern about how fiscal and governmental policies will impact corporations next year.”

The Nasdaq fared better than the other two indexes as Broadcom Inc BRCM.O jumped 9.6 percent to $40.79 a day after it unexpectedly forecast a potential rise in fourth-quarter revenue. [ID:nN26132733]

Also on Nasdaq, Comcast Corp (CMCSA.O) gained 2.6 percent to $20.15 after earnings and revenue came in better than estimated. [ID:nN27204585]

Consumer products maker Procter & Gamble C’s (PG.N) quarterly profit beat expectations, helped by strength in emerging markets. The Dow component was unchanged at $62.86. [ID:nN27198603]

Apparel maker Jones Group Inc JNY.N tumbled 23 percent to $15 after its profit missed estimates and said pressure from higher costs would persist. [ID:nN27205686]

The day’s economic data was mixed, with sales of new U.S. single-family homes rising more than forecast in September, but demand for durable goods, excluding aircraft, unexpectedly falling in the same month. [ID:nN27216698]

U.S.-listed shares of Argentine stocks surged following reports of the death of former president Nestor Kirchner. Viewed as a contender for the post next year, he was considered by many as anti-big business.

Transportadora de Gas Del Sur SA (TGS.N) soared 14.2 percent to $4.54, while IRSA Investments and Representations Inc (IRS.N) added 7.4 percent to $14.95. (Additional reporting by Doris Frankel; editing by Jeffrey Benkoe)

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