NEW YORK: The dollar index hit a more than 2-year high and stocks tumbled after Federal Reserve Chairman Jerome Powell said Wednesday's 25-basis-point rate cut was not the same as the beginning of a lengthy easing cycle.

Powell, speaking in a news conference after the release of the Fed statement, characterized the rate cut as “a mid-cycle adjustment to policy," comments that do not imply sharp further cuts are on the way.

Some market participants were expecting the Fed to leave the door open for further cuts or even a 50 basis point cut after Wednesday's meeting, so the less dovish stance sent US stocks to session lows and the dollar index soaring.

“Two additional rate cuts are not written in stone by a long shot, and there's been some talk about a pause," said Hugh Johnson, chief investment officer at Hugh Johnson Advisors in Albany.

“Now you start to raise doubts about (the additional) cuts, then that's not good news for the stock market."

The Dow Jones Industrial Average fell 333.75 points, or 1.23 percent, to 26,864.27, the S&P 500 lost 32.8 points, or 1.09 percent, to 2,980.38 and the Nasdaq Composite dropped 98.20 points, or 1.19 percent, to 8,175.42.

MSCI's gauge of stocks across the globe shed 0.70.

Emerging market stocks lost 0.59 percent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.69 lower, while Nikkei futures lost 0.77.

In currencies, the sharp move higher in the dollar ate into a pound rebound, though the British currency was still slightly up against the greenback after four days of declines.

“We are just seeing some stabilization after very bad four days," said Lee Hardman, FX strategist at MUFG. “It doesn't change the bigger picture and the pound will continue to weaken but clearly it won't be a one-way street," Hardman added.

The pound earlier rose as much as 0.8% against the dollar near $1.225 but was last trading at $1.2161, up 0.10 percent on the day.

It closed July with its weakest monthly performance against the dollar since October 2016.

The dollar index rose 0.52 percent, with the euro down 0.7 percent to $1.1075.

The dollar powered higher partly as the Fed “acknowledged strong labor markets, recent reasonable signs of moderate growth. It still leaves the playing field wide open as to what they're going to do in future months," said Tony Bedikian, head of global markets at Citizens Bank in Boston.

The Japanese yen weakened 0.15 percent versus the greenback at 108.79 per dollar.

In commodities, crude oil futures settled higher for the fifth straight day, buoyed by a bigger-than-expected drop in US inventories, but the stronger dollar helped bring prices down from session highs in post settlement trading.

US crude futures settled at $58.58, up 0.91% per barrel and Brent settled up 0.7% at $65.17. WTI was in the red in post settle trading.

The yields on US government debt were in part weighed down by the tumble in stocks.

Benchmark 10-year notes last rose 13/32 in price to yield 2.0161, from 2.061 late on Tuesday.

Spot gold dropped 1.3 to $1,412.30 an ounce. Copper lost 0.13 to $5,940.00 a tonne.

Copyright Reuters, 2019