Sensing Action by the Fed, Wall St. Closes Lower Wall Street closed lower on Thursday amid growing expectations that the Federal Reserve will cut its monetary stimulus as early as next week. By the end of trading, the Standard & Poor's 500-stock index was down 0.4 percent, the Dow Jones industrial average fell 0.7 percent and the Nasdaq composite was 0.1 percent lower. Strong news on retail sales and signs of an imminent budget agreement in Congress have reinforced expectations that the Fed would start reducing its $85 billion worth of financial asset purchases at next week's policy meeting. "While markets have undoubtedly priced in an adjustment to monetary policy, a transition toward tapering still has the potential to unsettle investors and act as a catalyst for market volatility to re-emerge," said James M. Baird, chief investment officer at Plante Moran Financial Advisors. Since the Fed's stimulus has helped buoy stocks over the last few years, its potential reduction has jolted markets periodically in recent months. Any tapering, however, is expected to be accompanied by a renewed commitment by the Fed to keep interest rates low. That, analysts say, helps explain why stock markets are still trading at relative highs and why bond markets are not getting too excited. Investors were also weighing the latest economics news. The Commerce Department said retail sales increased 0.7 percent last month after rising by a revised 0.6 percent in October. November's retail sales increase was the largest in five months. "The market will put the retail sales down as one more first tier economic release favoring an early tapering," said Alan Ruskin, an analyst at Deutsche Bank. Weekly jobless claims showing a 68,000 spike last week, to 368,000, were largely ignored given difficulties making adjustments as a result of the late timing of the Thanksgiving holiday. In Europe, the FTSE 100 index of leading British shares closed down 1 percent, at 6,445.25 points, while Germany's DAX fell 0.7 percent, to 9,017. The CAC 40 in France ended 0.4 percent lower, at 4,069.12. The negative tone was set in Asia, where Japan's Nikkei 225 fell 1.1 percent, to close at 15,341.82 points. Hong Kong's Hang Seng dropped 0.5 percent, to 23,218.12, while China's Shanghai Composite eased 0.1 percent, to 2,202.80. Markets were also down in Australia, India, Taiwan and Southeast Asia. On Wall Street, the focus will likely remain on the Fed until that decision next Wednesday. The future of the Fed's stimulus has been the main driver in markets since May, when chairman Ben S. Bernanke first raised the possibility. "Between now and the meeting next week, the moves in the markets are going to continue to be largely driven by investors" interpretation of what the Fed will do next week," said Craig Erlam, market analyst at Alpari. Trading in currency markets was muted. The euro was down 0.3 percent, at $1.3738, and the dollar gained 0.8 percent, to 103.27 yen.