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US STOCKS-S&P closes lower after last week's rally with inflation in focus

·3 min read
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(Updates prices, adds commentary)

By Sinéad Carew and Anisha Sircar

May 31 (Reuters) - The S&P 500 closed lower on Tuesday after a three-session rally as volatile oil trading kept soaring inflation in focus and investors reacted to hawkish comments from a Federal Reserve official.

After outperforming earlier in the session, the S&P's energy sector lost ground as oil prices reversed course after a report that some OPEC members were exploring the idea of suspending Russia from an oil-production deal, potentially paving the way for other producers to pump significantly more crude.

Federal Reserve policy was also top of mind for investors as U.S. President Joe Biden and Fed Chair Jerome Powell met on Tuesday to discuss inflation, which Biden said ahead of the meeting was his "top priority."

This was after Fed Governor Christopher Waller said on Monday the U.S. central bank should be prepared to raise rates by a half percentage point at every meeting from now on until inflation is decisively curbed.

"The market's trying to figure out the endgame for the Fed," said Jack Janasiewicz, portfolio manager at Natixis Investment Management solutions.

And while lower commodity prices would be good news for equities in the longer term, the impact of the report about OPEC and Russia on the energy sector may have spooked the broader market a little on Tuesday.

"That's the sort of thing that has the market on edge," said Janasiewicz. "When we started out, the sector leading us higher was energy."

According to preliminary data, the S&P 500 lost 24.52 points, or 0.59%, to end at 4,133.72 points, while the Nasdaq Composite lost 48.62 points, or 0.40%, to 12,082.51. The Dow Jones Industrial Average fell 190.80 points, or 0.57%, to 33,006.27.

All three indexes had rallied last week to snap a decades long losing streak.

"There're too many concerns at the moment for markets to do a sharp V-bottom," said Carol Schleif, deputy chief investment officer at BMO Family Office, who sees equities trading sideways for some time due to uncertainties including the Russia-Ukraine war, the global economy and inflation, as well as Fed policy.

"A piece of it is energy prices because at the margin those really impact people's propensity to spend. People are really noticing the higher prices at the grocery store," she said.

Earlier in the day, data showed U.S. consumer confidence eased modestly in May amid persistently high inflation and rising rates, while a separate reading showed U.S. home price growth unexpectedly heated up to record levels in March.

Other key data due this week is the monthly non-farm payrolls numbers for cues on the labor market.

U.S.-listed shares of Yamana Gold Inc climbed after South African miner Gold Fields Ltd agreed to buy the Canadian miner in a $6.7 billion all-share deal.

Dexcom Inc jumped after the glucose monitoring systems maker denied a report on merger talks with insulin pump maker Insulet Corp. (Reporting by Sinéad Carew, Anisha Sircar, Devik Jain and Sruthi Shankar in Bengaluru; Editing by Marguerita Choy)