NEW YORK (Reuters) - US stocks ended flat to lower in an erratic session yesterday after the Federal Reserve inched closer to further steps designed to support the recovery.

Stocks initially popped higher but gave back those gains quickly. Investors had hoped that with recent improvements in economic data, the Fed would issue a more upbeat outlook or clarify the measures it would take to stimulate demand.

The central bank nudged the door wider to pumping more money into the economy but kept overnight interest rates unchanged near zero, as expected.

With the S&P 500 up about nine percent this month, investors still felt a conflict whether a move by the Fed would be enough to put the economy on a path to sustainable growth.

"One interpretation would be that things are deteriorating and therefore they need to do more. On the other hand, the favorable aspect of it would be they're going to print more money to boost asset prices," said Bucky Hellwig, senior vice-president at BB&T Wealth Management in Birmingham, Alabama.

The confusion can be seen in disparate classes of investments rallying simultaneously, with bond prices rising alongside stocks in recent days.

Volume picked up after the announcement but was still light, with 8.03 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Last year's estimated daily average was 9.65 billion shares.

The CBOE Volatility Index, a measure of investor sentiment, climbed 3.9 percent, while declining stocks outnumbered advancing ones on the NYSE by a ratio of almost two to one. On the Nasdaq, eight stocks fell for every five that rose.

The Dow Jones industrial average was up 7.41 points, or 0.07 percent, at 10,761.03. The Standard & Poor's 500 Index was down 2.93 points, or 0.26 percent, at 1,139.78. The Nasdaq Composite Index was down 6.48 points, or 0.28 percent, at 2,349.35.

The Dow was lifted by heavy machinery maker Caterpillar Inc, which climbed 2.2 percent to $76.39.

After the market's close, software company Adobe Systems Inc fell 11 percent to $29.62 in extended trading. The company reported its third-quarter results and gave an outlook.

Online auction site eBay Inc. rose two percent after it forecast third-quarter earnings near the high end of its outlook.

In Monday's session, the S&P 500 broke through a key technical range to close at a four-month high, though some analysts were skeptical about Monday's breakout above 1,130, the upper end of a range that has persisted since June.

Sectors that had rallied recently, including technology and materials shares, gave back some gains yestersday. Dow components Microsoft Corp fell 1.1 percent to $25.15 while Alcoa Inc. lost 1.9 percent to $11.17.

The government said US housing starts increased in August to their highest level in four months, while permits for future construction rose, suggesting the embattled housing market was starting to stabilise.

The Dow Jones home construction index added 0.8 percent, and homebuilder DR Horton Inc. rose 0.9 percent at $11.14.

"It was very encouraging to see how strong the number was, but much of the strength was in multifamily homes, and that tends to be a volatile measure," said Ed Crotty, chief investment officer at Davidson Investment Advisors in Great Falls, Montana.

Airline shares rose, with the ARCA airline index advancing two percent after a trade group forecast global airlines will likely post sharply higher 2010 profits.