REUTERS: Wall Street's main indexes dipped on Wednesday over worries of a prolonged U.S.-China trade war after Washington toughened its stance, but losses were cushioned by a muted reading on inflation that backed the case for an interest rate cut.
A report from the Labor Department showed U.S. consumer prices rose 0.1per cent in May, in line with expectations of economists polled by Reuters, pointing to moderate inflation.
"These numbers will add some fuel to the case made by the markets and many analysts that the Fed should cut rates," said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.
Fresh worries erupted on the trade front after President Donald Trump said he was holding up a deal with China and had no interest in moving ahead unless Beijing agrees to four or five major points.
With under three weeks to go before proposed talks between the United States and Chinese leaders, sources say there has been little preparation for a meeting even as the health of the world economy is at stake.
Trump also said a potential trade deal could be reached with China, but again threatened to increase tariffs on Chinese goods if they do not make a deal.
"The trade fears have come back and will continue to make investors nervous at least until the G20 summit. The fact remains that the two countries are not very close to making a deal," said Rick Meckler, partner, Cherry Lane Investments, New Vernon, New Jersey.
Hopes that the Federal Reserve will act to counter a slowing global economy due to escalating trade war have spurred a rally in stocks this month, with the S&P 500 index rising 4.7per cent so far in June.
Fed policymakers will meet on June 18-19 and markets have priced in at least two rate cuts by the end of 2019. Fed fund futures imply around an 80per cent chance of an easing in rates as soon as July.
Banking stocks, which tend to benefit from a higher interest rate environment, slipped 1.19per cent. The broader financial sector fell 0.84per cent.
At 13:05 p.m. ET the Dow Jones Industrial Average was down 36.00 points, or 0.14per cent, at 26,012.51, the S&P 500 was down 4.88 points, or 0.17per cent, at 2,880.84 and the Nasdaq Composite was down 27.77 points, or 0.36per cent, at 7,794.79.
Facebook Inc shares declined 1.93per cent after the Wall Street Journal reported that the social media giant uncovered emails that appear to show Chief Executive Officer Mark Zuckerberg's connection to potentially problematic privacy practices at the company.
Semiconductor stocks, which get a sizeable portion of revenue from China, declined, with the Philadelphia Semiconductor index dropping 1.91per cent.
Micron Technology Inc, Applied Materials Inc and Lam Research Corp fell about 5per cent and were the top losers among S&P 500 companies.
The energy index slid 1.24per cent, the most among the 11 S&P sectors, as crude prices fell more than 2per cent.
In a bright spot, the defensive utilities sector gained 1.31per cent.
Declining issues outnumbered advancers for a 1.20-to-1 ratio on the NYSE and a 1.11-to-1 ratio on the Nasdaq.
The S&P index recorded 21 new 52-week highs and two new lows, while the Nasdaq recorded 26 new highs and 85 new lows.
(Reporting by Shreyashi Sanyal and Aparajita Saxena in Bengaluru; Editing by Arun Koyyur)