Feds Leave Key Interest Rate Unchanged; Stocks React

WASHINGTON (AP) - The Federal Reserve says strains in financial markets have "increased significantly" but it kept a key interest rate unchanged.

The central bank said Tuesday it was keeping its target for the federal funds rate, the interest that banks charge on overnight loans, unchanged at 2 percent.

In a statement, the Fed said "strains in financial markets have increased significantly and labor markets have weakened further."

NEW YORK (AP) - Stocks are turning lower after the Federal Reserve disappointed some investors by keeping interest rates unchanged.

Although many on Wall Street expected the Fed to keep its target federal funds rate steady at 2 percent, there was some hope that the central bank would try to calm uneasy financial markets with a quarter-point rate cut. So major indexes that were narrowly mixed just before the decision turned lower.

In a statement accompanying its decision, the Fed noted the growing strains in the financial markets and continuing weakening in the labor market. But it also sought to give some reassurance by saying it expected its policy moves to foster moderate economic growth over time.

The Dow Jones industrials, up modestly before the Fed move, fell 106 points to the 10,811 level.

(Copyright 2008 by The Associated Press. All Rights Reserved.)