U.S. stocks fall as Fed’s Williams discusses tapering stimulus

U.S. stocks fell, after the Standard & Poor’s 500 Index extended a record yesterday, after a Federal Reserve official said the central bank may slow the pace of stimulus as early as this summer amid disappointing economic reports.

Wal-Mart Stores Inc. lost 2.2% after the world’s largest retailer forecast second-quarter profit that was less than analysts estimated as the slow U.S. economy and higher taxes put pressure on consumers. Cisco Systems Inc. surged 13% after reporting fiscal third-quarter profit that topped estimates. Tesla Motors Inc. jumped 10% as it plans to sell as much as $830 million in shares and debt.

The S&P 500 fell 0.4% to 1,651.82 at 3:36 p.m. in New York. The Dow Jones Industrial Average dropped 33.84 points, or 0.2%, to 15,241.85. Trading of S&P 500 stocks was 11% higher than the 30-day average at this time of day.

“Today’s disappointing economic reports will set the tone,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion, said by phone. “The U.S. economy is still struggling with lackluster growth and the recovery is far from self-sustaining, so equity markets are looking for guidance from central banks for their liquidity high.”

The U.S. bull market has entered its fifth year. The S&P 500 has surged 144% from a 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Federal Reserve.

Bond Buying

Equities extended losses this afternoon as Fed Bank of San Francisco President John Williams said the central bank may begin slowing the pace of its $85 billion in monthly bond-buying amid signs the economy is gradually gaining strength.

“We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year, Williams said today in the text of a speech in Portland, Oregon.

Fed Chairman Ben Bernanke has said he would continue unprecedented stimulus until the jobless rate falls to 6.5% or inflation rises above 2.5%.

Jobless claims jumped by 32,000 to 360,000 in the week ended May 11, the most since the end of March, Labor Department figures showed today. Another report showed the cost of living in the U.S. fell in April for a second month, the first back-to- back declines in inflation since late 2008.

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