Stocks mixed ahead of Fed

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NEW YORK (CNNMoney.com) -- Stocks were mixed Wednesday, as investors considered Yahoo's weaker forecast and a big drop in GDP growth ahead of an expected interest-rate cut from the Federal Reserve.

The Dow Jones industrial average (INDU), the broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all declined in the early going.

Stocks rallied Monday and Tuesday as investors welcomed some upbeat earnings and geared up for the conclusion of the Fed's two-day policy meeting.

Central bankers are meeting Wednesday with a decision on monetary policy due at around 2:15 p.m. ET. Expectations are for the Fed to cut the fed funds rate, a key overnight bank lending rate, by another half-percentage point, to 3%. Last week, the Fed issued an emergency interest-rate cut, lowering the fed funds rate by three-quarters of a percentage point.

Investors will also be closely attuned, as always, to the language in the accompanying statement. Stocks have tumbled this year on worries that the housing and credit market crises will drive the economy into a recession, if it isn't there already.

Fourth-quarter growth was anemic, the government reported Wednesday. GDP growth slowed to an 0.6% annualized rate in the quarter, down from 4.9% in the third quarter, and short of forecasts for a rate of 1.2%.

Another report, from payrolls services firm ADP, showed that private sector employment grew more than expected in January, growing by 130,000 versus forecasts for 40,000. The report could be a good indicator for Friday's broader monthly labor market report.

Earnings news. Yahoo (YHOO, Fortune 500) warned that 2008 revenue could miss the high end of analysts' current forecasts and said that it will cut 1,000 jobs in February. The search engine also reported higher earnings that topped estimates on higher revenue that met estimates. However, investors focused on the negative, sending shares 8% lower. (Full story).

Merck reported a steep loss in the fourth quarter due to charges associated with a settlement over its withdrawn painkiller Vioxx. Excluding those charges, Merck reported a quarterly profit that topped estimates. The company also reported higher revenue that missed analysts' forecasts. Merck (MRK, Fortune 500) shares slumped 3%.

UBS (UBS) warned that its will report a steeper-than-expected fourth-quarter loss and take a $14 billion writedown largely due to bad mortgage bets. UBS shares gave up 2%.

Flextronics (FLEX) reported higher fiscal third-quarter earnings that topped forecasts, lifting shares of the electronics manufacturer by 10 percent.

Market breadth was mixed. On the New York Stock Exchange, losers topped winners by a narrow margin on volume of 320 million shares. On the Nasdaq, advancers topped decliners seven to six on volume of 550 million shares.

Other markets. Treasury prices slipped, raising the yield on the 10-year note to 3.7% from 3.67% late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar gained versus the yen and fell against the euro.

U.S. light crude oil for March delivery rose 56 cents to $92.20 a barrel on the New York Mercantile Exchange. Oil prices had eased off highs following the release of the government's weekly supply report, which showed crude oil and gas stocks rose more than expected.

COMEX gold for April delivery fell $6.80 to $924 an ounce, after touching an all-time trading high of $933.50 Tuesday.