Stocks end down, yields up as Powell sticks to hawkish stance

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks ended a volatile session lower while Treasury yields were up Wednesday as the U.S. Federal Reserve delivered a three-quarters of a percentage point interest rate hike and Fed Chairman Jerome Powell said it was too soon to speculate over a pause in rate hikes.

The dollar was down against the Japanese yen, but well off its earlier lows.

Stocks initially jumped and yields extended declines after the U.S. central bank announced the rate hike as expected, and signaled that future increases in borrowing costs could be made in smaller steps.

But markets sharply reversed course after Powell, in remarks during a news conference after the announcement, said "it is very premature to be thinking about pausing" on the effort to lift the federal funds target rate.

"The (stock) market's response was positive until the press conference," said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

Powell "didn't waver in his commitment towards restoring price stability, and obviously the market was not pleased with that," she said.

The Fed has been aggressively raising rates in order to bring down inflation, and investors have been speculating over when it could get less aggressive in its tightening cycle.

The Dow Jones Industrial Average fell 505.44 points, or 1.55%, to 32,147.76, the S&P 500 lost 96.41 points, or 2.50%, to 3,759.69 and the Nasdaq Composite dropped 366.05 points, or 3.36%, to 10,524.80.

MSCI's gauge of stocks across the globe shed 1.72%.

After their initial decline, benchmark 10-year notes last were up 3.2 basis points to 4.084%, from 4.052% late on Tuesday.

U.S. two-year yields, which reflect rate expectations, were up 6.6 bps at 4.603%.

In currencies, the dollar intially fell sharply and was down more than 1% against the Japanese yen following the Fed announcement. The dollar was last down 0.3% at 147.76 yen.

The euro was down 0.55% to $0.982.

Oil prices ended higher, climbing further after the Fed's rate news.

Brent crude settled up $1.51, or 1.6%, to $96.16 while U.S. West Texas Intermediate (WTI) crude settled up $1.63, or 1.8%, to $90.

(Additional reporting by David Gaffen in New York; Editing by Kim Coghill, Mark Potter, Alex Richardson, Diane Craft and Deepa Babington)