U.S. stocks pared their losses in late trading Wednesday as investors recalibrated their expectations for a major bout of easing by the Federal Reserve to stimulate the economy. Energy stocks were among the biggest drags on the stock market, after weekly oil inventory numbers showed U.S. stockpiles of crude oil rising by 5 million barrels. Exxon Mobil dropped 1.7% and Chevron fell 1.4% as crude-oil prices fell. ConocoPhillips fell 1.2%, despite posting third quarter earnings that more than doubled, buoyed by higher commodity prices and improved refining margins.

Oil prices also were hurt by the rising dollar, which hit commodity prices across the board. Gold fell to just above $1,320 an ounce, while copper tumbled 2.3%. That sent down materials and industrials stocks, the two worst-performing sectors of the day. McDonald's dropped 2.1% to lead the decliners on the DJIA, while Alcoa shed 1.6%. Bank of America gained 2.6% to lead blue chips, as well as a broader recovery in financial stocks, after concerns earlier this month about mortgage foreclosures.

The declines came as investors tamped down expectations for a shock and awe approach by the Fed to help the economy, a strategy the central bank had turned to during the financial crisis, in favor of an approach that allows them to adjust policy over time as the recovery unfolds. Expectations are now increasing for the Fed to unveil a program of U.S. Treasury bond purchases of a few hundred billion dollars over several months, an approach in contrast to the central bank's purchases of nearly $2 trillion of bonds during the financial crisis.

European market

European stocks closed lower Wednesday, with upbeat data from the euro-zone region helping to lift shares from their lows, but the drag of basic resources stocks couldn't be overcome.The dollar moved higher against major currencies, lifted by anticipation that the Federal Reserve's well telegraphed quantitative easing program may not be as robust as some had expected.

The Wall Street Journal reported Wednesday that the central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months. This is less than expected, traders said, adding that expectations were for quantitative easing of as much as $2 trillion.

The pan-European Stoxx 600 Index closed down 0.7% at 264.93. The U.K.'s FTSE 100 slipped 1% to 5646.02, France's CAC-40 lost 1% at 3815.77, and Germany's DAX declined 0.7% to 6568. In the U.S., the Dow Jones Industrial Average was 1.1% lower at 11050.60 mid session after data showed sales of new homes climbed 6.6% in September, representing the second straight month of gains, but still well below the pace when a tax credit existed.

On the plus side, Portugal's Treasury and Government Debt Agency sold EUR1.225 billion of government bonds, or OTs, at an auction Wednesday, at the upper end of its range. On Thursday, the U.K. will release nationwide house prices for October, Germany publishes unemployment data at for October and in the U.S. comes initial jobless data. In major market action:

In Germany, Deutsche Bank rose 1% after it posted a smaller than expected third quarter net loss of EUR1.21 billion. A pickup in investment banking helped cushion a EUR2.3 billion charge related to the bank's investment in Deutsche Postbank. Deutsche Bank's results lifted sentiment throughout the financial sector. BNP Paribas SA added 0.1% in Paris and Lloyds Banking Group gained 1.7% in London. Meanwhile, shares of European potash giant K+S AG rose 2.4%. K+S was lifted to buy from hold at Citigroup, which sees strong demand and a tight market for potash driving up prices.

On the downside in Germany, shares of SAP AG slumped 2.8%. The business-software giant's third quarter net profit fell short of expectations. Shares of STMicroelectronics NV gained 3.9%. The Italian-French semiconductor group swung to a third quarter profit as revenue and margins grew. Earnings topped expectations and revenue was in line. The company also appointed a new chief operating officer. Shares of Michelin SA fell 2.5%, a day after the company reported that third quarter sales rose 24%. Royal Bank of Scotland reiterated a buy rating on the shares, with a new target price of 72 a share.

Shares of Dutch brewing giant Heineken NV fell 3.5% in Amsterdam after the company's third quarter sales growth of 13% missed expectations. The firm also disappointed on volumes. In London, basic resources shares fell as commodity prices weakened. Xstrata PLC slumped 3.8% and Kazakhmys PLC skidded 5%.

Asian market

Asian markets ended mostly lower on Wednesday as concerns that the U.S. quantitative easing might not be as large as expected triggered a rebound in the U.S. dollar and hurt commodity plays in Hong Kong and China. Hong Kong's Hang Seng Index dropped 1.9%, China's Shanghai Composite gave up 1.5%, Australia's S&P/ASX 200 shed 0.9%, South Korea's Kospi lost 0.5% and Taiwan's Taiex slid 0.6%, while India's Sensex declined 1.1% in afternoon trading.

Japan's Nikkei Stock Average climbed 0.1% after a volatile session, as some exporters advanced on the dollar's gains against the yen. The fall in commodities stocks in Hong Kong and China came amid a rebound in the U.S. dollar after The Wall Street Journal reported that the U.S. Federal Reserve was likely to unveil a program of Treasury purchases worth a few hundred billion dollars over several months, in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.

In Hong Kong, PetroChina lost 4.3% and Cnooc dropped 2.5%, while China Petroleum & Chemical Corp., or Sinopec, shed 3.4%. On the mainland, Sinopec fell 1.4% and PetroChina dropped 2.1%, Huludao Zinc Industry fell 4.7% and Yunnan Copper dropped 4.8%.

Base metals

Base metals on the London Metal Exchange ended sharply lower Wednesday on a rallying dollar, which strengthened as investors lowered their expectations for U.S. Federal Reserve monetary easing. Equity markets were also in the red, reflecting a broad cooldown in risk assets after they ran higher on speculation that the Fed would unveil a large quantitative easing program next week at the Federal Open Market Committee meeting.

A smaller monetary purchase program would strengthen the dollar, since the supply of dollars wouldn't increase by as much as expected. This would in turn lower the need to hold gold as a hedge against a weaker dollar or inflation. Wednesday's losses left aluminum close to a one month low, and zinc and copper at five day lows. The EUR/USD touched a one week low of $1.3759.

Crude futures settled lower Wednesday as a stronger dollar weighed on prices, but an unexpected drop in weekly gasoline inventories helped prevent a larger decline. Light, sweet crude for December delivery settled 61 cents, or 0.7%, lower at $81.94 a barrel on the New York Mercantile Exchange after falling as low as $80.52 earlier in the session. Brent crude on the ICE futures exchange settled 43 cents lower at $83.23 a barrel.

Gold futures dropped Wednesday as the combination of a rising dollar and expectations of muted quantitative easing proved poisonous to the metal. Gold for December delivery retreated $16, or 1.2%, to $1,322.60 an ounce on the Comex division of the New York Mercantile Exchange. That's gold's lowest settlement since Oct 4.

Newsletter: Subscribe to receive this report daily