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US STOCKS-Wall Street sputters amid rate hike jitters

·3 min read

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window.)

* Market sees 26% likelihood of a 100 bps rate hike from Fed

* Starbucks projects strong profit growth over next three years

* Indexes: Dow down 0.20%, S&P off 0.03%, Nasdaq up 0.23% (New throughout, adds NEW YORK dateline, changes byline)

By Stephen Culp

NEW YORK, Sept 14 (Reuters) - U.S. stocks struggled for gains on Wednesday as an on-target inflation report stanched an extension of Tuesday's sell-off and investors searched for bargains.

The S&P hovered near the zero line, the Nasdaq ticked higher and the Dow was last modestly lower, all three indexes failing to meaningfully regain ground lost in Tuesday's plunge which marked their largest percentage drops in more than two years.

"It looks as if investors are hesitant as to whether to buy the dip or wait and see if there’s further follow-through to the downside after the big decline yesterday," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. "It's 'wait and see.'"

The Labor Department's producer prices (PPI) data landed close to consensus estimates and provided some relief in the aftermath of Tuesday's market-rattling CPI print, which came in hotter than expected.

The PPI report offered reassurance that inflation is indeed on a slow, downward trajectory.

But it still has a long way to go before it approaches the Federal Reserve's average annual 2% inflation target, and while financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC's policy meeting next week, they see a one-in-four likelihood of a super-sized, 100 basis-point increase, according to CME's FedWatch tool.

Two-year U.S. Treasury yields, which reflect interest rate expectations, extended Tuesday's rise.

The size and duration of further interest rate hikes going forward have many market observers concerned over the lagging effects of the Fed's tightening phase, with some viewing recession as unavoidable.

The transports sector, seen as a barometer of economic health and which provides a glimpse into the supply side of the inflation picture, was weighed down by rail stocks in the face of a potential strike.

"It almost feels like (recession) has to be a fait accompli. The issue is whether it’s going to be a bad one. If the Transports go below their June lows then it might be worse than people expected."

Railroad operators Union Pacific, Norfolk Southern and CSX Corp were down 3.8%, 2.4% and 1.7% respectively, even as Labor Secretary Marty Walsh met with union representatives in Washington in talks aimed at preventing a rail shutdown.

At 2:24 p.m. EDT, the Dow Jones Industrial Average fell 61.29 points, or 0.2%, to 31,043.68, the S&P 500 lost 1.09 points, or 0.03%, to 3,931.6 and the Nasdaq Composite added 26.50 points, or 0.23%, to 11,660.07.

Of the 11 major sectors of the S&P 500, energy stocks were the top percentage gainers, boosted by rising crude prices over supply concerns.

Starbucks Corp shares jumped 5.3% after the company upped its three-year profit and sales outlook.

Tesla Inc rebounded from Tuesday's drop, rising 2.7% on the same day President Joe Biden was set to announce $900 million in funding for EV charging stations.

Declining issues outnumbered advancing ones on the NYSE by a 1.10-to-1 ratio; on Nasdaq, a 1.11-to-1 ratio favored decliners.

The S&P 500 posted 2 new 52-week highs and 28 new lows; the Nasdaq Composite recorded 20 new highs and 179 new lows.

(Reporting by Stephen Culp in New York Additonal reporting by Ankika Biswas, Devik Jain and Sruthi Shankar in Bangalore Editing by Matthew Lewis)