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Stocks dip ahead of Fed decision as oil tumbles

Stocks edged lower early Wednesday as investors awaited word from the Federal Reserve.

A sharp drop in oil weighed on energy and material stocks. Gains in some technology companies helped temper the market's losses. The Dow Jones industrial average is about 200 points away from 10,000, a mark it hasn't been above since October.

The U.S. central bank is expected to keep its benchmark interest rate at a record low of near zero, but investors are hoping for a clearer indication of when the Fed may raise rates in the future. Investors will also be looking for more clues about the strength of the economy's recovery in the statement to be released at the conclusion of the Fed's two-day policy meeting Wednesday afternoon.

"The whole market in general is just waiting and seeing," said John Canally, an economist at LPL Financial. "The market is going to look through every word of this statement for the 'when.'"

Low interest rates have helped spur the nearly seven-month rally in stocks, weakening the dollar and providing investors with access to cheap financing. The obstacle the Fed faces is determining the appropriate time to raise rates and exit some of its stimulus programs. If the Fed raises rates too soon it risks upsetting the recovery, but if rates are left low for too long it could lead to inflation.

With major market indicators up more than 50 percent since early March, investors are worried that stocks have become overvalued, especially with the strength of the economy's recovery still in question.

"Because we're up so much there is a tendency to hesitate here," said Steven Goldman, chief market strategist, Weeden & Co. in Greenwich, Conn.

In late morning trading, the Dow fell 24.71, or 0.3 percent, to 9,805.16. The Standard & Poor's 500 index fell 3.85, or 0.4 percent, to 1,067.81, while the Nasdaq composite index fell 2.45, or 0.1 percent, to 2,143.85.

Declining stocks outnumbered advancers by about 3-to-2 on the New York Stock Exchange, where volume came to 302.4 million shares, compared with 340.7 million shares traded at the same time a day earlier.

Oil prices dropped $2.74 to $69.02 a barrel on the New York Mercantile Exchange, bringing energy stocks down with it, after the government reported that crude inventories unexpectedly rose by 2.8 million barrels last week. Crude in storage is now 10.6 percent above year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.

Analysts had expected a drop of 2.25 million barrels for the week ended Sept. 18, according to a survey by Platts, an energy information service owned by McGraw-Hill Cos.

In other trading, the Russell 2000 index of smaller companies fell 1.95, or 0.1 percent, to 619.94.

On Tuesday, the Dow rose 51 points, recovering all of the previous day's losses, as the dollar sank and commodities rebounded. The market's movements have been moderate in recent weeks as investors try to determine whether the massive jump in stocks since early March accurately reflects the state of the economy.

Britain's FTSE 100 fell 0.2 percent in afternoon trading, Germany's DAX index fell 0.5 percent and France's CAC-40 fell 0.3 percent.

Hong Kong's Hang Seng index fell 0.5 percent. Japan's markets were closed for a public holiday.

Bond prices turned higher as stocks edged lower. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.44 percent from 3.45 percent late Tuesday.

The dollar was mixed against other major currencies, while gold prices slipped.