The Dow Jones industrial average lost 99.35 points, or 0.96%, to 10,275.13. The broader Standard & Poor's 500 index fell 8.56 points, or 0.71%, to 1,191.29. The tech-heavy Nasdaq composite fell 11.93 points, or 0.58%, to 2,056.96.
In a move widely expected by the market, the Federal Reserve raised the Fed funds target rate to 3.25% after a two-day meeting of by Federal Open Market Committee, the central bank's policy-setting arm. Action Economics noted that the committee's statement contained the buzzword "measured" and indicated that the expansion is firm even with rising energy costs. "This signals there is more work to be done and practically guarantees a 3.5% rate after the August meeting," said Action Economics.
On Thursday, the June Chicago purchasing managers' index, a measure of manufacturing activity in the Chicago area, came in slightly weaker than expected at 53.6, a month after it dropped more than ten points to 54.1. The median forecast of economists was for a June reading of 54.3, said Action Economics.
The Commerce Department released figures showing that U.S. personal income rose 0.2% in May, below the consensus predicting 0.4%, and consumption was unchanged. Initial jobless claims for last week fell by 6,000 to 310,000, when economists were expecting an increase of 11,000.
In the energy markets, August crude oil settled down 76 cents to $56.50 on the New York Mercantile Exchange.
In corporate news, Dow component Boeing (BA ) announced Thursday that 3M (MMM ) head James McNerney will fill the chief executive spot at the aerospace giant formerly held by Harry Stonecipher, who left in March after admitting an affair with a Boeing executive. Boeing was up 7% after the announcement, while 3M's stock fell 4.5%.
Bank of America (BAC ) said it agreed to acquire credit-card company MBNA (KRB ) for $35 billion in cash and stock, in a deal that combines the biggest domestic bank in the U.S. with one of the largest card issuers.
Morgan Stanley (MWD ) was also in the spotlight after a Wall Street Journal report said that the bank's board is expected today to vote in former Morgan Stanley president John Mack as chief executive.
Chinese oil group CNOOC (CEO ) will continue to pursue a takeover bid for Unocal (UCL ) even though Unocal's board has recommended that shareholders vote to accept a rival offer from Chevron (CVX ), the Associated Press reported.
PalmOne (PLMO ), maker of handheld computers, said that fourth-quarter profit rose 33% to $17.7, over the period last year, thanks to strong sales of its Treo smart phones.
Looking ahead to Friday, the Institute for Supply Management's June survey on manufacturing activity will be released. The median forecast is expecting the index to come in at 51.1, according to Action Economics. There are no major corporate earnings releases on Friday's calendar.
Treasury prices initially fell after the Fed announcement, but turned higher. The yield on the benchmark 10-year note fell to 3.92%.
European stock markets closed mixed Thursday.
London's FTSE 100 index gained 4.10 points, or 0.08%, to 5,113.20, as British first-quarter GDP was revised down to 0.4% growth from the earlier estimate of 0.5%, and fourth quarter GDP was revised down to 0.6% growth from 0.7%. Also, June consumer confidence dropped to -3 from -1 in May. HSBC bank was down as Morgan Stanley lowered its rating to underweight, and financial services group Aviva was higher after J.P. Morgan raised its rating to overweight.
In Germany, the DAX index added 2.65 points, or 0.06%, to 4586.28, following reports that Eurozone June economic sentiment rose to 96.3 from 96.1, industrial sentiment improved to -10 from -11, and consumer sentiment remained at -15. The utility RWE was higher after Dresdner Kleinwort Wasserstein raised their share price estimate for the stock.
In Paris, the CAC 40 index fell 2.53 points, or 0.06%, to 4,229.35. Drinks group Pernod Ricard was lower after the bank ING downgraded the stock to hold, and France Telecom was higher a day after the company said it would double its dividend, reduce debt and introduce new services.
Asian markets finished mixed Wednesday. In Japan, the Nikkei index gained 6.57 points, or 0.06%, to 11,584.01. Strength in exporters including carmakers and others such as Takeda Pharmaceuticals continued, as the dollar strengthened further.
In Hong Kong, the Hang Seng index fell 76.22 points, or 0.53%, to 14,201.06.