U.S. Stocks Mixed Before Fed

NEW YORK (MarketWatch) -- U.S. stocks were mixed Wednesday, with the Dow Jones Industrial Average hitting a new high, in a show of confidence ahead of the Federal Reserve's decision on interest rates, while technology shares stayed under pressure after a bleak sales forecast from Cisco Systems.

"While no change in monetary policy is expected, investors are awaiting the market's reaction to the post-meeting statement" which "might signal the Fed's next move," said Frederic Ruffy, analyst at Optionetics.

The Dow industrials were up 31 points at 13,340, just off a new record high of 13,344. Leading the Dow were shares of Honeywell Inc. , Verizon Communications , JP Morgan Chase & Co. and McDonald's Corp. .

"Some expect to hear a friendlier, more accommodative Fed," Ruffy said. "The market might get thrown for a loop, however, if the committee appears more hawkish instead."

Investors hope that a housing-led economic slowdown will lead the central bank to eventually cut interest rates to stave off a hard landing for the economy. But with few signs that inflation is abating, the central bank has maintained a slightly hawkish outlook.

International Business Machines , also a Dow component, rose 1% after being upgraded to buy from neutral at Goldman Sachs after the technology giant's buyback move.

Weighing on blue chips, Walt Disney & Co. dropped 1.2% after the entertainment giant didn't generate as much revenue as analysts had forecast, though its 27% profit rise came in ahead of forecast.

The S&P 500 index rose 1.6 points to 1,509, while the Nasdaq Composite lost 2.6 points to 2,569.

Tech-leader Cisco Systems dropped 6.3% after predicting slowing revenue growth. The networking gear producer reported a 34% profit rise and 21% revenue rise.

By sector, telecoms , networking , internet led the declines. Semiconductors , airlines , and gold fell.

Trading volumes showed 744 million shares exchanging hands on the New York Stock Exchange and 1.1 billion on the Nasdaq stock market. Advancing issues topped decliners by 3 to 2 on the NYSE, while decliners topped gainers by 15 to 14 on the Nasdaq.

Fed clocks in

The Fed is due to announce its interest rate decision at 2:15 p.m. Eastern -- expectations in the market are that rates will be held at 5.25%.

"The market is universally positioned for this, with the only risk being that the Fed may change its language to be a bit more bearish on the economy than the market expects," said Carl Weinberg, chief economist at High Frequency Economics.

Time for pull-back?

Investors are also consolidating some of the market's record gains of the past two months. Through Monday's close, the Dow industrials had matched a 80-year old record of advancing in 24 out of 27 sessions. The average fell back on Tuesday.

"An acceleration in merger-and acquisition activity has caused the stock market to surge higher, despite [slowing] earnings growth and the weaker-than-expected economic outlook," said Bob Doll, global chief investment officer at BlackRock.

"Such divergences are not enough to warrant selling cyclical positions, but they do warn that the recent one-way ride up in equity prices could hit turbulence at any point in time," he said.

Other markets

Bonds rose slightly, sending yields lower, ahead of the Fed decision. The benchmark 10-year Treasury bond rose 1/32 at 98 31/32, yielding 4.630%.

Crude oil futures were down 10 cents at $62.16 a barrel before weekly inventory numbers.

Gold futures also fell, losing 80 cents to $686.60 an ounce.

On the metals scene, Rio Tinto climbed over 6% on market speculation that the world's number one miner, BHP Billiton , launched a takeover offer. Rio Tinto said it's not aware of any approach.

The Rio Tinto gains come amid a number of consolidation moves in the metals sector, including Alcoa's $27 billio hostile bid for rival aluminum producer Alcan . Previously there has been speculation that Rio or BHP may try to buy Alcoa.

Corporate news

Also on the M&A front, at least three groups of private-equity buyers are circling Alltel , The Wall Street Journal reported Wednesday. Alltel rose 1.2%.

Toyota Motor reported a 9% profit rise on 10% revenue growth in the January-to-March quarter, as U.S. and European sales growth offset flagging sales at home. The stock dropped 0.7%.

Toll Brothers , the luxury home builder, issued another profit warning, noting that tighter lending standards were affecting affordability at lower price points. Its shares were down 0.6%.

News Corp. , whose $5 billion bid for Dow Jones & Co. was disclosed last week, posted quarterly earnings of 27 cents a share, a 6.2% increase from the year earlier, and in line with analysts estimates. News Corp shares fell 1.6%.

Dow Jones is the publisher of this report.

By Nick Godt