US stocks lost most of their early gains on Wednesday afternoon after investors reacted negatively to uncertainty at the Federal Reserve.

Equities traded higher throughout the morning, but received a double blow in the afternoon.

Representative Darrell Issa, the top Republican on the House Oversight and Government Reform Committee accused Fed chairman Ben Bernanke of a “cover up” regarding disclosures over Bank of America’s acquisition of Merrill Lynch last year.

The Fed then released the results of its latest Open Market Committee, and a perceived lack of boldness in its inflation outlook led some investors to question whether Mr Bernanke’s position might be making the Fed cautious.

“The statement really didn’t say anything,” said John Lekas, portfolio manager at Leader Capital. It was “less hawkish on inflation than it normally would have been” due to Bernanke’s position being called into question.

The questions over the deal also made the position of Ken Lewis, Bank of America’s chief executive, vulnerable, and the bank’s shares dropped 2.5 per cent in the afternoon. It managed to hold on to some of the morning’s impressive gains though, closing 1 per cent up at $12.35.

There remained some support for stocks from Oracle’s profits and positive economic data.

The software maker earlier reported sales and profits that topped Wall Street estimates and its shares gained 7 per cent to $21.26.

Other technology companies also felt the benefit and Microsoft rose 0.6 per cent to $23.47.

On a busy day for economic data, the markets were reassured by the Organisation for Economic Co-operation and Development, which upgraded its forecasts for US growth for 2009 and 2010.

Stocks were given added impetus by figures showing that durable goods orders unexpectedly rose in May.

Lower demand for cars had been expected to drag the number down and the figures helped Fordclimb 1.8 per cent to $5.63.

Meanwhile, materials producers and industrial companies performed well.

Metals stocks continued Tuesday’s recovery following a sharp sell-off on Monday, boosted by the durable goods numbers and higher commodity prices.

Alcoa, which produces aluminium, rose 2.1 per cent to $10.21 while Free-port McMoRan, the copper miner, which was upgraded by Friedman Billings Ramsey, picked up 3.4 per cent to $48.80.

The materials sector was initially given an extra boost by results from Monsanto, the agricultural group, which beat estimates with its quarterly earnings.

But the shares fell 4 per cent to $76.16 after the group said gross profit from its Roundup herbicide could fall 50 per cent on increased competition.

The benchmark S&P 500 index closed up 0.7 per cent to 900.94 and the Nasdaq Composite index was 1.6 per cent higher at 1,792.34.

The Dow Jones Industrial Average fell 0.3 per cent, however, to 8,299.86. The morning’s gains had come despite figures showing the number of new home sales unexpectedly fell in May.

“The fact that the market completely shrugged off the new home sales data had me stunned,” said Dan Cook, senior market analyst at IG Markets.

Financial stocks were higher after figures showed mortgage applications rose last week as interest rates dropped.

They then continued to climb in spite of suffering a brief dip on the new home sales data.

Wells Fargo ended 1.1 higher at $23.17. Citigroupalso advanced, helped by the news that it intends to increase employees’ base salaries in 2009 as part of an effort to retain top talent. Its shares climbed 1 per cent to $3.04.

Meanwhile, Darden Restaurants, which owns US mid-market chains, including Olive Garden, also beat earnings estimates but the shares fell as it warned 2010 would be worse than hoped. The stock lost 3.2 per cent to $31.94.

There was more bad news from supermarket operator SuperValu, which warned lower customer spending would mean substantially lower quarterly profits than expected. The shares fell 12 per cent to $13.81.

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