"Traditionally, what you see on Fed decision day is a rally until up to just before the announcement, then we pull back a little bit," said Jeff Swensen, senior trader at John Hancock Funds.

"It's really symbolic," added Swensen, referring to the quarter-point cut. "There are other stimuli in the market that are going to help increase economic activity in the second half."

According to preliminary calculations, the Dow Jones industrial average closed down 98.32, or 1.1 percent, at 9,011.53, having gained 36.90 yesterday. Earlier today, the blue chips had risen as much as 51 points.

The broader market also finished lower. The Nasdaq composite index slipped 2.98, or 0.2 percent, to 1,602.63. The Standard & Poor's 500 index fell 8.14, or 0.8 percent, to 975.31.

The Fed voted 11 to 1 to cut the federal funds rate to 1 percent, the lowest level since 1958, noting that the economy had not yet shown sustainable growth. The dissenter, Fed member Robert Parry, supported a half-point cut.

"They pursued a sound compromise," said Joseph Keating, chief investment officer at AmSouth Asset Management. While working to prevent deflation, "the Fed recognized that many fundamentals for stronger growth were already in place."

Ed Peters, chief investment officer at PanAgora Asset Management Inc., said a market selloff after the decision wasn't surprising.

"When corporate earnings come in at the low end of expectations, markets are usually disappointed," Peters said. "The same will hold for the rate cut. Any positive impact is already priced in."

A pair of government reports, meanwhile, offered a mixed assessment of the economy.

The Commerce Department reported today that new home sales jumped by 12.5 percent in May from the previous month. The seasonally adjusted annual rate of 1.16 million was the best month ever; the figure also beat analysts' expectations.

But in a separate report, the department said durable-goods orders fell by 0.3 percent in May from April. The reading was weaker than the 1 percent gain economists were forecasting.

Stocks have rallied in the past three months on expectations of an improving economy and another rate cut. But now investors want to see stronger proof the recovery is firmly on track, analysts say.

"The next key factor after today is to focus on second-quarter earnings statements and their outlook for the third and fourth quarter," Swensen said.

Decliners included Goldman Sachs, which fell $1.82 to $84.78, after the investment bank reported quarterly profits that handily beat analysts' estimates.