Wall St slips as Fed remains in focus for investors

The ASX is set for modest gains as investors continue to focus on the prospects of a US rate hike later this year.

US stocks slipped as investors remained focused on the Federal Reserve. Picture: AP Photo/Richard Drew.

US stocks edged lower overnight, as the dollar strengthened on expectations that the Federal Reserve was moving closer to raising interest rates.

European shares closed mixed as investors considered whether the European Central Bank might have to step up its stimulus measurers in response to weak data.

The Australian share market is set for modest gains, with ASX futures up 7 points at 6.25am (AEST).

Stock-trading volumes have been below the 2016 average this month, with Monday’s US session the lightest of the year so far.

US monetary policy remains in sharp focus for investors. On Friday, Fed Chair Janet Yellen and Vice Chairman Stanley Fischer said the economy was resilient enough to withstand an interest-rate rise this year.

The Dow Jones Industrial Average fell 49 points, or 0.3 per cent, to 18454. The S&P 500 declined 0.2 per cent, weighed down by utilities shares, which have benefited this year from expectations that rates will stay low. The Nasdaq Composite was off 0.2 per cent.

The dollar strengthened to its highest level in more than a month, while US crude oil fell 1.3 per cent to $US46.35 a barrel.

“By all appearances, the move down in the market today is driven by a stronger dollar and heightened expectations of a rate hike by the Fed this year,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

Higher interest rates tend to make a currency more attractive to investors seeking returns, but a stronger dollar can erode the earnings of US corporations that sell their goods overseas.

The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, rose 0.6 per cent Tuesday to its highest level since late July, putting it on track for its third consecutive session of gains.

The prospect of a rate rise pushed up banking shares. Financials were the only S&P 500 sector with a gain on Tuesday, after leading Monday’s rally.

Expectations of US interest rates remaining lower for longer have helped fuel a rally in riskier assets in recent months in everything from global stocks to emerging-market bonds. Still, some argue investors are reassured by signs that the world’s largest economy is robust, particularly given further rate rises are expected to be gradual.

Kully Samra, managing director at Charles Schwab, expects one rate rise before the end of 2016 but isn’t counting on a move next month.

“The economy is in a strong place — they’re in a strong place to hike in September — but given the track record we’ve seen, I think it’s unlikely,” said Mr Samra, referring to the Fed’s apparent reluctance to raise rates earlier this year in the face of financial market turbulence.

Consumer shares were among the biggest decliners Tuesday.

Hershey shares fell 11 per cent a day after Mondelez International ended its pursuit of the chocolatier.

Gap shares dropped 4.3 per cent, and Urban Outfitters declined 2.5 per cent.

The Stoxx Europe 600 added 0.5 per cent, lifted by banking shares.

Stocks in Asia mostly rose, with Australia’s S&P ASX 200 up 0.2 per cent and Hong Kong’s Hang Seng index climbing 0.9 per cent. Japan’s Nikkei Stock Average ended down less than 0.1 per cent as a batch of mixed economic data weighed on local shares.

Dow Jones