Analysts said investors also were unsettled by the fact that the decision was not unanimous, with one Federal Open Market Committee member voting for another hike.

The Dow Jones Industrial Average ended down 45.79 points at 11,173.59. The S&P 500 and the Nasdaq Composite  finished down 4.29 points at 1,271.48 and down 11.65 points at 2,060.85.

Volume was light, with 1.61 billion shares traded on the New York Stock Exchange, where declining stocks outnumbered rising shares by 19 to 13. There were more than 1.90 billion in the Nasdaq market, with more than two losers for every winner.

Stocks rallied briefly after the decision, which leaves the Fed funds rate at 5.25%, but the gains soon evaporated. The central bank has put in place 17 consecutive rate increases starting in June, 2004.

In the statement, as expected, the FOMC kept all its options on the table. It repeated that any further tightening would depend on the economic data.

The Fed said that "inflation risks remain," usually a signal that it's leaning to hike rates again. However, it also said that inflation pressures seem likely to moderate "reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand." See full story.

The lone dissenter favoring another increase was Richmond Fed president Jeffrey Lacker.

"While the market initially reacted positively to the pause, I believe the markets will begin to focus on why the Fed paused," said Barry Hyman, equity market strategist at EKN Financial Services.

Hyman said it appeared that the Fed paused, "not because the FOMC has reached their neutral point on rates, but because they are concerned about overshooting and forcing the economy into a recession.

"If the market interprets this pause as I have stated it will likely lead to additional selling pressures because market participants will be concerned with the overall slowdown in the US economy," he said.

Max Bublitz, chief strategist at Seneca Capital, said investors likely were put off by Lacker's dissension.

Hugh Johnson, Chairman of Johnson Illington Advisors, said the statement was much like the one issued on June 29.

The Dow Jones Industrial Average closed 20.97 points lower at 11,219.38. The S&P 500 Index and the Nasdaq Composite Index respectively, finished down almost 3.59 points at 1,275.77 and 12.55 points lower at 2,072.50.

Volume was light, with 1.34 billion shares traded on the New York Stock Exchange, where declining stocks outnumbered rising shares by 5 to 3. There were 1.44 billion shares traded on the Nasdaq market, with 19 falling stocks for every 10 shares trading higher.

"We're not in a bull market, and we're not in a bear market," said Al Goldman, A.G. Edwards' chief market strategist. "We're in a turtle market."

"A turtle waddles around in the muck of all kinds of problems."

Investors are still adjusting to new Federal Reserve Chairman Ben Bernanke and are uncertain how to read his signals. But many think the Fed will break Tuesday from the steady stream of quarter-percentage-point increases that have been put in place since June 2004.

The overnight bank lending rate now stands at 5.25%.

Although equities investors want to see a pause in rate hikes Tuesday, few are expecting the market to rally much if the central bank takes a break. Marc Pado, U.S. market strategist at Cantor Fitzgerald, said a rate pause is already priced into stocks.

A.G. Edwards' Goldman added that the market's focus after the Fed meeting is likely to shift to the U.S. economic slowdown, and particularly to the question, "Are we in for a soft landing or a hard landing?"

He also said that recent data show economic cooling, but whether the slowing is significant or minor is open to debate.

The late summer rush of deals also will include a $400 million IPO from vitamin retailer GNC, a $200 million IPO from Aircastle Ltd. and a tiny $30 million IPO from InterMetro Communications. Alien Technology, a $99 million IPO bumped off the calendar a couple of weeks ago, remains on day-to-day status.

The market for new offerings is attempting to shake off a combination of geopolitical jitters, volatile equity markets and a traditional summer slowdown with one of the busiest calendars in recent months.

Qimonda, the memory specialist for Germany's Infineon Technologies, plans to sell 63 million shares at $16 to $18 a share with underwriters Credit Suisse and J.P. Morgan. The IPO is expected to price Wednesday for its stock-market debut Thursday.