Updated: Fed to hold rates low, Dow recovers, oil slides

The US Federal Reserve this evening said it would hold interest rates near zero for at least two more years and was mulling tools to promote growth in a weak recovery.

The policy-setting Federal Open Market Committee said that "economic growth so far this year has been considerably slower" than expected, and as a consequence the central bank would likely keep "exceptionally low levels for the federal funds rate at least through mid-2013."

Meanwhile the Dow was on a roller coaster. It rose early in trading, dropped sharply after the Fed statement, but then recovered strongly to end trading up almost 4% from a loss of 5% yesterday

OIL PRICE SLIDES

Meanwhile, oil prices tumbled again today after the Fed said it would keep interest rates exceptionally low for another two years to help prop up slower than expected US economic growth.

New York's main contract, West Texas Intermediate light, sweet crude for delivery in September, closed at $79.30 a barrel, down $2.01 from yesterday's closing level.

In London, Brent North Sea crude for September shed $1.17 to settle at $102.57 a barrel. Earlier, it had slid to $98.76, its lowest level since February 8.

Oil prices, which had fallen more than five per cent Monday after rating agency Standard & Poor's downgraded US credit, roiling global markets, extended their nose-dive after the Fed issued a downbeat view of the world's largest economy.

Economic growth so far this year has been "considerably slower" than expected and "downside risks to the economic outlook have increased," the policy-setting Federal Open Market Committee said in a statement after a one-day meeting in Washington.

The FOMC kept its key interest rate unchanged near zero and said that economic conditions were likely to warrant "exceptionally low" rates "at least through mid-2013."

The statement reinforced market worries that growth is sputtering in the United States, the world's largest oil consumer, which could result in reduced demand.

"It's pretty clear they have taken a significantly more negative tone on the economy going forward, both short term and now at least medium term with the mid-2013 target period for low rates," said John Kilduff at Again Capital. 

The Organization of Petroleum Exporting Countries -- whose 12 member nations pump about 35 percent of global oil supplies -- estimated crude oil demand of 88.14 million barrels per day (mbd) in 2011, down from a previous estimate of 88.18.

For 2012, OPEC projected 89.44 mbd, down from 89.50 mbd.