Wall Street falls on rates hike fear

Specialist Jay Woods at his post that shows five years of the Dow Jones industrial average, on the floor of the NYSE. The Dow closed above 17,000 for the first time last week, but dropped overnight.. Photo / AP

Wall Street fell overnight, pushing bench market indexes from record highs, on concern the US Federal Reserve might lift its key interest rate sooner than expected amid consistent signs of solid growth in the world's largest economy.

In late afternoon trading in New York, the Dow Jones Industrial Average fell 0.37 per cent, the Standard & Poor's 500 index shed 0.42 per cent, while the Nasdaq Composite Index slumped 0.72 per cent. Both the Dow and the S&P 500 had ended July 3 with record closing highs, while markets were closed on July 4 for the Independence Day holiday.

Declines in shares of Goldman Sachs and those of UnitedHealth, down 1.4 per cent and 1.3 per cent respectively, paced the slide in the Dow.

Following last week's better-than-expected government jobs report, some market watchers are adjusting their forecasts. The Fed will raise its benchmark rate in the third quarter of 2015, rather than the first three months of 2016, Goldman Sachs Chief Economist Jan Hatzius wrote in a report on Sunday, according to Bloomberg News.

"There's a risk the market may be underestimating the Fed's tightening path," Rainer Guntermann, a fixed-income strategist at Commerzbank in Frankfurt, told Bloomberg News.

Concern about US rates climbing sooner than previously expected also hurt gold. Gold futures for August delivery fell 0.3 per cent to settle at US$1,317 an ounce on the Comex in New York.

Watch: Dow breaks record 17,000

Meanwhile, there is some investor anxiety in the market on the eve of the US second-quarter earnings season with benchmark indexes trading near record highs. The Dow has gained 3.8 per cent in 2014, and is trading above 17,000 points, while the S&P 500 has added 8.1 per cent in the same period.

Alcoa is scheduled to report its quarterly results after the market close on Tuesday.

"The markets have moved robustly higher and significantly higher than many expected for the first six months of this year, so earnings need to be pretty much spot on or better than expected and anything less than that will lead to a period of underperformance," Peter Kenny, CEO of Clearpool Group in New York, told Reuters.

Profits are forecast to grow 6.2 per cent for the quarter, according to Thomson Reuters data.

Shares of Archer Daniels Midland rose, last trading 1.9 per cent higher at US$46.66, after the US company said it agreed to buy Wild Flavors, a Swiss food ingredients maker, for 2.3 billion euros (US$3 billion).

In Europe, the Stoxx 600 Index shed 0.9 per cent. The UK's FTSE 100 slid 0.6 per cent, Germany's DAX dropped 1 per cent, and France's CAC 40 sank 1.4 per cent.

There were further signs of weakness in Germany, the euro-zone's largest economy. A report on Monday showed German industrial output slid for a third month in May.