US stocks fall as Fed holds rates, oil surges

US stocks ended lower on Wednesday after the Federal Reserve kept interest rates unchanged and oil prices surged during new Middle East war escalations.

The Dow Jones Industrial Average closed down 2.2 percent at 51,594.14, the S&P 500 fell 1.5 percent to 7,316.15 and the Nasdaq Composite lost 1.7 percent to 24,442.94. Major US indices had initially welcomed the Fed decision but reversed course during Fed Chair Kevin Warsh's press conference.

Warsh pledged to return inflation to the Fed's two percent target while defending the decision not to raise rates. US inflation stood at 3.5 percent in June on an annual basis.

Adam Sarhan of 50 Park Investments said investors were getting mixed messages from the Fed. DoubleLine chief executive Jeffrey Gundlach told CNBC that the bond market's reaction showed skepticism about Warsh's comments, while Arun Sundaram of CFRA Research said the jump in the 30-year Treasury yield likely signalled doubts about the Fed's credibility on inflation.

The yield on the 30-year US Treasury reached 5.22 percent. A previously published market update said the yield had reached its highest level since 2007.

Oil prices rose after President Donald Trump vowed to hit back at Iran following an attack on US bases in Jordan, and after Saudi Arabia and the United States announced strikes on militant bases in Iraq. Brent North Sea crude rose 7.9 percent to $90.74 a barrel, while West Texas Intermediate climbed 6.6 percent to $84.46.

Technology shares remained under pressure as investors waited for large company earnings linked to artificial intelligence infrastructure spending. Microsoft shares rose after its results after the market close, while Meta fell.

In Europe, London's FTSE 100 reached a record high of 10,951.06 before paring gains and closing up 0.3 percent at 10,908.41. Paris's CAC 40 fell 0.6 percent and Frankfurt's DAX was flat.

Asian technology-linked markets also fell. South Korea's Kospi dropped 6.0 percent after Tuesday's near 11-percent fall, and SK hynix shed almost 20 percent despite reporting large profits and promising continued spending. Tokyo's Nikkei 225 fell 1.5 percent and Taipei dropped nearly four percent.