* Fed holds rates at near-zero
* Nine of the 10 S&P sectors lower; led by energy, financials
* Oil prices fall after Fed cites health of global economy
* Indexes down: Dow 1 pct, S&P 0.79 pct, Nasdaq 0.54 pct (Adds details, comment; updates prices)
By Tanya Agrawal
Sept 18 (Reuters) - Wall Street fell sharply on Friday after the Federal Reserve’s decision to keep interest rates near zero fueled concerns about global growth, muddying the outlook for stocks.
Apart from the state of the world economy, the Fed cited financial market volatility and sluggish inflation at home in its decision on Thursday, while leaving the door open for a modest policy tightening later this year.
“The path forward for stocks just became a lot less clear,” J.P. Morgan analysts said in a note.
An economic environment in which the Fed feels it can’t end the era of near-zero interest rates is not one likely to foster the kind of earnings growth needed to support stocks at their current, above-average valuations.
Despite recent declines, the S&P 500 is still trading near 15.6 times forward 12-month earnings, above the 10-year median of 14.7 times, according to Thomson Reuters StarMine data.
Third-quarter earnings are already expected to decline 3.7 percent, according to Thomson Reuters data.
“Investors are wrestling with how concerned they should be regarding global growth,” said Jeremy Zirin, chief equity strategist at UBS Wealth Management.
“The Fed has introduced a quasi third mandate about the global growth, apart from the labor market and inflation.”
At 11:27 a.m. ET (1527 GMT), the Dow Jones industrial average was down 166.39 points, or 1 percent, at 16,508.35, the S&P 500 was down 15.67 points, or 0.79 percent, at 1,974.53 and the Nasdaq composite was down 26.42 points, or 0.54 percent, at 4,867.53.
Nine of the 10 major S&P sectors were lower with the energy index’s 1.73 percent fall leading the decliners as oil prices declined after the Fed’s comments. Exxon fell 1.5 percent, while Chevron was down 1 percent.
The financial index fell 1.65 percent as Citigroup , Bank of America, Wells Fargo and JPMorgan were all down about 2.5 percent. Banks would benefit from an interest rate increase.
Investors are now focusing on the Fed meeting on Oct. 27-28 as the next chance for the central bank to raise interest rates for the first time since 2006.
A growing number of economists, including those at Morgan Stanley and Barclays, are now wondering whether the Fed will raise rates at all this year.
Interest rate futures indicated only a 21 percent chance of a hike at the Fed’s next meeting, with a 47 percent chance in December.
“Investor uncertainty will continue and each economic data point and other news out of China will be sliced and diced,” said Keith Lerner, chief market strategist at SunTrust Bank in Atlanta.
The CBOE volatility index, known as the “fear gauge”, jumped 7.7 percent to 22.76, above its long-term average of 20.
Adobe was up 3.7 percent at $83.32, reversing premarket losses, after brokerages raised their price target on the stock a day after the company’s third-quarter profit beat expectations.
Declining issues outnumbered advancing ones on the NYSE by 1,872 to 1,045. On the Nasdaq, 1,677 issues fell and 991 advanced.
The S&P 500 index showed two new 52-week highs and 13 new lows, while the Nasdaq recorded 19 new highs and 34 new lows. (Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)