Stocks get no relief from Fed

NEW YORK (CNNMoney.com) -- The minutes from the latest Federal Reserve meeting provided little relief to Wall Street as investors worried about record oil and gold prices and signs of manufacturing sector weakness in the first trading day of 2008.

The Dow Jones industrial average (INDU) lost over 200 points with less than 1-1/2 hours left in the session. The broader S&P 500 (INX) index fell 1.4 percent and the tech-fueled Nasdaq (COMPX) composite lost 1.8 percent.

Major indexes enjoyed a brief bounce after the Fed said deepening problems in the housing and credit markets prompted the central bank to cut interest rates at its December meeting as it tried to bolster the economy.

The minutes provided little insight into the Fed's next move, however, leaving investors to remain focused on the fallout in the credit and housing markets, which dragged on stocks in the second half of last year.

Adding to such worries: a December survey showing the first contraction in manufacturing activity since January 2007 and the weakest reading since April 2003.

The Institute for Supply Management's manufacturing index fell to 47.7 from 50.8 in November, versus forecasts for a drop to 50.5. A reading below 50 signals contraction.

Meanwhile, oil and gold prices spiked to new records.

U.S. light crude oil for February delivery briefly topped $100 a barrel for the first time ever, before pulling back a bit. (Full story).

COMEX gold for February delivery surged $22 to $860 an ounce, an all-time high, rising in tune with other dollar-traded commodities.

"You take the ISM number showing lower growth and top it off with oil higher on the geopolitical unrest and you have a nice little stew there," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Worries about the pairing of weaker growth and higher inflation raise the threat of recession, but also of so-called "stagflation," Saluzzi said, all of which adds to the anticipation for Friday's December labor market report.

"If the payrolls number is worse than expected, watch out below," he said.

Employers are currently expected to have added 70,000 jobs last month, after adding 94,000 in the previous month. Ahead of that, the ADP private sector employment report is due. The ADP report is generally seen as a harbinger of the broader monthly report.

Stocks managed to post gains in an extremely volatile 2007, with the Dow rising 6.4 percent, the S&P 500 adding 3.5 percent and the Nasdaq climbing 9.8 percent.

2008 is expected to be just as volatile, as investors continue to try to assess the economic outlook in the wake of the housing and credit market fallout.

Investors on Wednesday were also awaiting the minutes from the Federal Reserve's Dec. 11 policy meeting, due out at 2 p.m. ET. The release could provide clues about what the central bank plans to do with rates in upcoming meetings. The Fed cut a key short-term interest rate three times in a row in the second half of 2007.

Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of 1.6 billion shares.

Among stock movers, 29 out of 30 Dow components slid. Declines were led by Intel (INTC, Fortune 500), which fell on a Banc of America Securities downgrade, according to Briefing.com.

Banc of America also downgraded other stocks in the semiconductor sector, including Texas Instruments (TXN, Fortune 500) and National Semiconductor (NSM).

One of the few bright spots was Amazon.com (AMZN, Fortune 500), which rose 3 percent after Citi Investment Research upgraded it to "buy" from "hold."

Treasury prices rallied, as investors sought safety in the comparatively safer haven of government debt, lowering the yield on the 10-year note to 3.91 percent from 4.03 percent late Monday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar slipped versus the euro and the yen.