Dow Slips 31 Points on Eve of Fed’s Rate Decision

Nervous investors sent stocks lower Wednesday as they anxiously awaited the Federal Reserve’s decision today on interest rates and looked past an increase in U.S. oil inventories and revised first-quarter data showing a solid advance in the gross domestic product.

“Everybody is just sitting tight until we get some news from the Fed,” said James Park, a trader at Rodman & Renshaw Inc. in New York.

Investors sent stocks up in early trading on falling oil prices and a Commerce Department report that the economy grew at an annual rate of 3.8% in the first quarter of 2005, an upward revision from the 3.5% the government estimated a month ago.

But the two-day meeting of the Fed’s Open Market Committee, which sets the central bank’s interest rate policy, ultimately weighed on the market.

The Dow Jones industrial average slipped 31.15 points, or 0.3%, to 10,374.48. The Dow gained 114.85 points on Tuesday.

Broader stock indicators also fell slightly. The Standard & Poor’s 500 index was down 1.72 points, or 0.1%, at 1,199.85 and the Nasdaq composite index eased 1 point, or less than 0.1%, to 2,068.89.

Bonds were barely changed, with the yield on the 10-year Treasury note at 3.98%, up from 3.97% on Tuesday.

Wall Street has had two preoccupations in recent weeks -- interest rates and oil prices.

Most investors expect the Fed to raise its key short-term rate today from 3% to 3.25%, the ninth rate hike in a year. More significantly, they’re hoping for a sign in the policymakers’ post-meeting statement that the increases will soon come to an end.

The market’s anxiety about the Fed had investors ignoring a drop in crude oil prices -- an event that normally would give stocks a lift. Oil futures fell 94 cents to $57.26 a barrel on the New York Mercantile Exchange after the Energy Department reported a substantial increase in gasoline production and lesser increases in oil imports and commercial crude inventories last week.

The oil report did reassure stock investors that the record-high oil prices reached earlier in the week, when crude passed $60, may continue to drop and that an oil shortage doesn’t look to be imminent.

“Our sense is that companies have not been challenged to get their hands on crude,” said Bob Morris, director of equity investments at Lord Abbett. “It’s more expensive, but the availability is there.”

In other market highlights:

* Insurer AIG climbed $3.31 to $58.48. The company, reporting its first results since a $3.9-billion earnings restatement, said fiscal first-quarter profit excluding realized gains on investments and derivatives was $1.21 a share. Analysts polled by Thomson First Call expected $1.18, on average.

AIG’s gain helped send an index of financial services stocks up 0.6%. St. Paul Travelers Cos., the big commercial insurer, increased 96 cents to $39.87.

* A gauge of energy shares fell 0.5% after the decline in oil prices. Exxon slid 65 cents to $58.44 and Occidental Petroleum fell $1.30 to $77.67.

* Among Southland issues, William Lyon Homes slid $3.49 to $96 after its founder late Tuesday withdrew an offer to buy out shareholders at $82 a share. The stock fell as low as $91 at the start of trading but quickly recovered to the $96-$97 range.

Sport Chalet closed up 80 cents at a record $17.30, after trading as high as $19.50. The retailer on Tuesday announced a recapitalization that would double the number of freely traded shares, potentially increasing investor interest in the thinly traded stock.