Dow Jones loses ground

A reminder that the US economy still remains a long way from recovery put the brakes on a January rally that has pushed stocks close to record levels.

Dow Jones loses ground

A reminder that the US economy still remains a long way from recovery put the brakes on a January rally that has pushed stocks close to record levels.

The Standard & Poor’s 500 logged its biggest drop of the year.

Stocks started the day lower after a report showed that the US economy unexpectedly contracted in the fourth quarter.

That decline extended after the Federal Reserve said that it would continue its bond-buying program to boost growth.

The Dow Jones industrial average fell 44 points, or 0.3%, to close at 13,910.42, logging only its second decline in nine days.

The Standard & Poor’s 500 fell 6 points, or 0.4%, to 1,501.96, its biggest decline since December 28. The Nasdaq composite fell 11 points to 3,142.31.

The US economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defence spending in 40 years, fewer exports and sluggish growth in company stockpiles, the Commerce Department said.

The Fed acknowledged that the economy is still struggling to regain momentum, in a statement following its two-day meeting, saying that growth had “paused in recent months”.

The central bank took no new action and said it would keep buying $85bn (€62.85bn) of bonds a month as part of its plan to keep borrowing costs low to spur growth.

Still, stocks remain on track for a great January.

The Dow Jones average has surged 6.2% since the start of the year, climbing close to 14,000 and within touching distance of its record level.

The S&P 500 has gained 5.3% this month, close to its highest level in more than five years. Investors bought stocks after lawmakers reached a deal to avoid the “fiscal cliff” and on optimism the US housing market is recovering and the jobs market is slowly healing.

US gross domestic product, the volume of all goods and services produced, contracted at an annual rate of 0.1% in the fourth quarter. That’s a sharp slowdown from the 3.1% growth rate in the July-September quarter.

Positive company earnings reports helped offset the disappointing news about the economy and stem a bigger decline.

Amazon jumped 12.41 dollars, or 4.8%, to 272.76 after the world’s biggest online retailer showed improving profit margins when it posted fourth-quarter earnings. Boeing, currently scrambling to fix battery problems that have grounded its 787 Dreamliner planes, gained 94 cents, or 1.3%, to 74.59 after it reported earnings that beat analysts’ expectations.

Rising profits from commercial jets offset a smaller profit from defence work.

A private survey showed US businesses increased hiring in January compared with a revised December reading. Payroll processor ADP said that employers added 192,000 jobs in January.

Traders and investors will now turn their focus back on to company earnings and tomorrow’s nonfarm employment report.

The yield on the 10-year Treasury note, which moves inversely to its price, fell 1 basis point to 1.99%.

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