US stocks pare losses; Dow closes off 1.15 per cent

After dropping almost 300 points in the first half hour, the Dow Jones Industrial Average closed down 137.74 points (1.15 percent) at 11,855.42.

The tech-centric Nasdaq Composite finished off 33.64 (1.25 per cent) at 2,667.33 after having dropped three per cent at the opening, while the broad-market S&P 500 index gave up 14.52 points (1.12 per cent) to 1,281.87.

"The breadth of selling interest left few asset classes unscathed," said analysts at Briefing.com.

However, by the afternoon, it said, "while many commodities came under severe pressure, basic materials stocks were actually leaders in the equity market's rally.

"The materials sector was down more than three per cent at the open, but finished with a loss of less than 0.2 per cent."

Federal Reserve policymakers kept ultra-low interest rates and $600 billion stimulus spending in place Tuesday as they noted easing unemployment, a pick-up in consumer spending and growing business optimism.

"The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually," the Federal Open Market Committee said in a statement.

The FOMC's vow to maintain rock-bottom interest rates, as well as the policymakers' comments about a gradually improving economic and employment backdrop, "helped stocks chip away at their deficits in afternoon trading," said Andrea Kramer at Schaeffer's Investment Research.

Energy stocks with a nuclear link were hit for a third straight day, while non-nuclear firms and alternative energy stocks jumped, with Suntech Power picking up 9.9 per cent and Yingli Green rising 9.0 per cent.

Nuclear power technology seller General Electric lost another 1.6 per cent, after a steep drop the previous day.

Banks also took a hit, with Citigroup losing 2.2 per cent and Bank of America 1.9 per cent.

Market operator NYSE Euronext, the possible target of a hostile bid from Nasdaq to prevent Germany's Deutsche Boerse from swallowing it up, moved up 1.3 per cent as punters anticipated a possible bidding war.

Nervous investors kept bond prices rising. The yield on the 10-year Treasury fell to 3.32 per cent from 3.34 per cent late Monday, while that on the 30-year note dropped to 4.47 per cent from 4.52 per cent.

Bond yields and prices move in oppposite directions.