Fed stands pat; so do stocks

Stocks finished flat Thursday after the Federal Reserve depicted economic growth as moderate and offered a cautious reading on inflation.

The central bank, which as expected kept its key short-term interest rate at 5.25%, issued a largely unchanged assessment of the economy, saying its primary concern remained the risk that inflation would fail to recede.

Stocks bounced around as investors tried to interpret the Fed’s comment that readings on inflation excluding energy and food prices showed some softening of price gains in recent months but no signs of sustained improvement.

“It’s a little bit of a hawkish message because they’re saying they’re not really convinced inflation is decreasing in any meaningful way,” said John Miller, head of fund management for Nuveen Asset Management. “They could have been more negative or more concerned about the meltdown in sub-prime markets or the potential for housing weakness to spread into consumer spending. The changes in the statement didn’t indicate any concerns about those recent events.”

The Dow Jones industrial average was up as much as 70 points after the Fed decision but ended off 5.45 points at 13,422.28.

The Standard & Poor’s 500 index edged down 0.63 points to 1,505.71, and the Nasdaq composite index rose 3.02 points, or 0.1%, to 2,608.37.

The Russell 2000 index of smaller companies rose 0.57 of a point, or 0.1%, to 839.03.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange.

Bond yields rose after the Fed’s comments. The yield on the benchmark 10-year Treasury note climbed to 5.11% from 5.08% late Wednesday. The dollar gained against the yen and the euro, while gold prices rose.

The modest moves in stocks Thursday followed a rally the day before by all three major indexes. Stocks have been turbulent during the last few weeks because of soaring bond yields and concern about the broader effect of faltering sub-prime loans.

The Fed’s comments on so-called core inflation, which excludes often volatile food and energy prices, came despite the expectation of some investors that the bank would switch its focus to overall inflation.

Wall Street’s focus on the Fed’s comments left little room for attention elsewhere; investors appeared unfazed as oil prices surged, climbing above $70 a barrel in New York for the first time since August, then fell back.

Oil began moving up Wednesday after a report showed an unexpected drop in gasoline inventories. Crude futures closed Thursday at $69.57, up 60 cents.

In other market highlights:

* Shares of disk-drive maker Komag jumped $2.25, or 7.6%, to $31.83 in late trading after Lake Forest-based rival Western Digital agreed to buy the San Jose company for $32.25 a share, or about $1 billion. During the regular session, Komag rose 49 cents.

Western Digital fell 20 cents, or 1%, to $19.53 in the regular session, then dropped 15 cents after hours.

* Home builders ended broadly lower after Los Angeles-based KB Home reported a fiscal second-quarter loss. KB fell 54 cents to $39.89, Ryland Group slid 80 cents to $37.95 and Lennar dropped 73 cents to $37.13.

* Impac Mortgage slid 20 cents to $4.39 after plunging $1.27 on Wednesday on the Newport Beach-based firm’s warning that it won’t pay a second-quarter dividend because of losses on foreclosed real estate it’s selling.

* CKE Restaurants, parent of Carl’s Jr. and other fast-food chains, slumped $1.20 to $20.25 after its quarterly earnings fell short of estimates.

* Constellation Brands advanced 85 cents, or 3.5%, to $24.98 after the world’s largest winemaker posted better-than-expected profit.

* Bed Bath & Beyond fell $1.47, or 3.9%, to $36.09 after the chain lowered its full-year profit projection.

* General Motors shares rose 74 cents, or 2%, to $38.15, a two-year high. The carmaker agreed to sell its Allison Transmission commercial and military business to private equity buyers.

* Dillard’s climbed $2.76, or 8.1%, to $36.69 after a group of minority shareholders said it would press the department store chain to boost earnings.

* Digital River fell $5.67, or 11%, to $45 after the e-commerce outsourcer cut its second-quarter and full-year forecasts.

* Novellus Systems fell $1.01, or 3.4%, to $28.89 after the chip equipment maker said its second-quarter results would come in at the low end of its forecast.

* Overseas, key stock indexes rose 0.5% in Japan, 0.7% in Britain, 1.5% in Germany and 1.1% in France.