Volkswacht Bodensee - Stocks drop with eyes on US Fed

Wall Street's main indices opened lower, with the Dow coming off a second straight record close and the tech-rich Nasdaq its best quarterly gain in six years with a 21.4 percent gain.

"After the recent rally, investors are catching a breath, with profit-taking looking likely as attention turns back to the outlook for US interest rates," said Susannah Streeter, chief investment strategist at Wealth Club.

European stocks were also lower in afternoon trading.

Asian stock markets made some gains after Wall Street's strong performance on Tuesday.

Stock markets globally enjoyed a largely fruitful first half of the year thanks to a surge in tech stocks on the AI boom, but ructions in the sector over the past few weeks have revived concerns that a bubble has formed.

While markets have endured such issues in the past, and bounced back to scale more heights, there is talk that the latest pullback might be more lasting.

That puts Thursday's US non-farm payrolls figures for June in focus, with a strong reading likely to ramp up expectations of a rate hike and deal a fresh blow to stocks, while a below-forecast reading could provide a boost.

June private sector job growth data released Wednesday came in below expectations and also slowed down from May.

"While AI remains a long-term structural growth theme, investors are becoming increasingly focused on valuations and whether the enormous investment in AI infrastructure will translate into earnings growth quickly enough to justify current share prices," noted Fiona Cincotta,analyst at City Index traders.

"At the same time, a more hawkish Federal Reserve has weighed on high growth stocks."

She said markets were eyeing a 60-percent chance of Fed hiking rates by a quarter point in September as inflation stays high, with some predicting three increases before January.

The dollar continued to benefit from talk of rate hikes, keeping the yen striking a fresh 40-year low versus the US currency.

"The strong dollar is proving a nightmare for Japan’s policymakers," said Trade Nation analyst David Morrison.

He noted that the value of yen has sunk below the level that triggered intervention to prop up the currency in April.

It "increasingly appears like a game of chicken between traders and the authorities as to when intervention may take place," he added.

The prospect of a higher interest rate differential is fueling what investors call the carry trade -- borrowing in yen with low rates and then investing it in higher-yielding dollar assets.

Investors were listening keenly to new Fed chief Warsh, who was speaking Wednesday at a bankers' conference in Portugal.

At his first meeting as Fed chair last month Warsh put more emphasis on pushing inflation down, and investors increasingly see the central bank hiking interest rates in the coming months.

In his early remarks Warsh gave no indication on the timing of a rate hike, with the Fed meeting on monetary policy later this month

Eurozone inflation meanwhile slowed in June after spiking as the Iran war sent energy prices sky-high, data showed, boosting chances of the European Central Bank keeping interest rates on hold.

Consumer prices in the 21-nation single currency area rose 2.8 percent compared with the same month a year earlier, down from 3.2 percent in May, said EU statistics agency Eurostat.

Elsewhere, oil prices dropped despite US-Iran concerns after the pair exchanged fresh fire.

- Key figures around 1330 GMT -

New York - Dow: DOWN 0.3 percent at 52,144.49 points

New York - S&P 500: DOWN 0.5 percent at 7,463.30

New York - Nasdaq Composite: DOWN 0.7 percent at 26,033.68

London - FTSE 100: DOWN 0.3 percent at 10,462.08

Paris - CAC 40: DOWN 0.8 percent at 8,340.95

Frankfurt - DAX: DOWN 0.1 percent at 24,962.54

Tokyo - Nikkei 225: UP 0.6 percent at 70,474.96 (close)

Shanghai - Composite: UP 0.4 percent at 4,112.45 (close)

Hong Kong - Hang Seng Index: Closed for a holiday

Dollar/yen: DOWN at 162.55 yen from 162.59 yen on Tuesday

Euro/dollar: DOWN at $1.1387 from $1.1418

Pound/dollar: DOWN at $1.3251 from $1.3256

Euro/pound: DOWN at 85.94 pence from 86.13 pence

Brent North Sea Crude: DOWN 1.3 percent at $71.97 a barrel

West Texas Intermediate: DOWN 0.8 percent at $68.94 a barrel

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M.Schneider--VB