Wall Street falls, then recovers after Fed

NEW YORK (Reuters) - Stocks fell briefly on Wednesday but then recovered most losses after the Federal Reserve voted to extend a program to stimulate the economy while offering no clues on further easing.

The Fed said it would extend Operation Twist, an effort to depress borrowing costs by selling short-term bonds to buy longer-dated ones, a move widely expected by market participants. Bets on that move fueled recent gains in stocks, with the S&P 500 up about 7 percent from a five-month low hit earlier in June.

"The Fed extending Twist was expected," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

"There may be some disappointment that the Fed didn't provide any strong hints in terms of new policy announcements."

The Fed said it was extending its Operation Twist program, due to end this month, by buying $267 billion in longer-dated securities by the end of 2012.

The Dow Jones industrial average fell 31.94 points, or 0.25 percent, to 12,805.39. The S&P 500 Index dropped 4.70 points, or 0.35 percent, to 1,353.28. The Nasdaq Composite shed 2.02 points, or 0.07 percent, to 2,927.74.

Markets are expected to be volatile as traders sift through the Fed's statement and wait for a news conference by Fed Chairman Ben Bernanke scheduled for 2:15 p.m. ET (1815 GMT).

European shares closed up 0.5 percent and at their highest since May 11 ahead of the Fed announcement.

Procter & Gamble shares fell 3.4 percent to $60.07 after the world's largest household product maker cut its growth forecasts.

Adobe Systems slid 3.7 percent to $31.68 after the maker of Photoshop and Acrobat software cut its full-year revenue outlook and warned about weak demand in Europe.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)