Fed’s caution note takes breeze out of market’s sails

NEW YORK — Stocks paused Wednesday, following a four-session rally in the Standard & Poor’s 500 index, as the Federal Reserve cut its estimates for growth amid a slowdown in hiring.

The S&P 500 dropped 2.29 points, or 0.2%, to 1355.69 after gaining 3.3% in the four previous sessions. The Dow Jones industrial average dipped 12.94 points, or 0.1%, to 12,824.39. The Nasdaq composite rose 0.69 points, or less than 0.1%, to 2930.45.

“It’s not all bad news, but caution is warranted,” says Eric Teal, chief investment officer at First Citizens Bancshares. “If the Fed saw significant deterioration, the policy response would have been on a larger scale. Yet there’s increased risk to the economic outlook.”

Stocks fell as the central bank cut its estimates for growth after last month’s slowdown in hiring and predicted little progress on unemployment during the rest of the year.

The Fed will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012. The continuation of so-called Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Com- mittee said Wednesday in a statement at the conclusion of a two-day meeting.

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a correction —10% drop from a recent peak — on concern about a global slowdown and a worsening of Europe’s crisis.

Investors also watched Europe’s latest attempts to tame its debt crisis on Wednesday. Antonis Samaras, head of Greece’s New Democracy party, was sworn in as prime minister after Greek political leaders agreed on a coalition that will seek relief from austerity measures tied to international loans.

Eight out of 10 groups in the S&P 500 fell Wednesday; utility and consumer staples companies had the biggest losses. Technology and financial shares advanced.

Adobe slumped 90 cents to $31.99. It reduced the high end of its annual sales growth forecast range to 7% from 8%, which is “anemic” for a technology company, says analyst Barbara Coffey at National Securities.

-Tesla Motors jumped $1.69 to $33.78 as the electric-car maker prepared to begin deliveries of Model S sedans and Goldman Sachs raised its price target for the shares.