Wall St falls as labor data spurs rate hike jitters before debt ceiling vote
US job openings unexpectedly rise in April
Advance Auto Parts slumps after forecast cut
Nvidia down after Tuesday's record high
Adds closing market prices at bell, comment in paragraph 12
By Herbert Lash and Shreyashi Sanyal
May 31 (Reuters) -U.S. stocks fell on Wednesday as a deal to raise the federal debt ceiling headed toward a crucial vote in Congress, while unexpectedly strong labor market data rattled investors who fear the Federal Reserve might hike interest rates again in June.
The House of Representatives is expected to vote in the evening on a bill to lift the $31.4 trillion debt limit, a critical step to avoid a destabilizing default that could come early next week without congressional approval.
House passage would send the bill to the Senate, where debate could stretch to the weekend, just before the June 5 date when the government could start to run out of money.
But most analysts foresee the bill's approval and U.S. President Joe Biden said on Wednesday he expected the debt ceiling bill on his desk by next Monday.
"The bond market liked that there was some fiscal discipline and the equity market liked that it's not going to hurt growth," said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania.
"I don't think we could have asked for a better outcome."
However, equity valuations are stretched considering interest rates are high, the economy is slowing and inflation needs to decline further, Conger said.
"Quite frankly, if we're really slowing down, the market is not offering a free lunch," he said. "It's going to be a struggle if inflation is not perceived to be ebbing, which is where we are."
The Labor Department reported thatU.S. job openings unexpectedly rose in April, pointing to persistent strength in a labor market that suggests pressure on both wages and inflation.
Futures traders raised to 70% the probability of a 25 basis points hike at the Fed's June 13-14 policy meeting. But that likelihood fell to about 32% after comments by Fed officials who are leaning to what some call a "hawkish pause." FEDWATCH
Fed Governor and vice chair nominee Philip Jefferson said skipping a rate hike in two weeks would provide policymakers time to see more data before making a decision. Philadelphia Fed President Patrick Harker also said on Wednesday that for now he is inclined to support a "skip" in rate hikes.
"The recent economic data has not really favored a pause in rate hikes," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. "But we've had a number of Fed governors coming out this afternoon and saying a pause is either likely or certainly possible."
The Labor Department's closely watched May unemployment report, due on Friday, could decide whether a rate hike occurs.
The major indices pared some losses after the comments by Fed officials.
The Dow Jones Industrial Average .DJI fell 131.88 points, or 0.4%, to 32,910.9, the S&P 500 .SPX lost 25.39 points, or 0.60%, to 4,180.13 and the Nasdaq Composite .IXIC dropped 82.14 points, or 0.63%, to 12,935.29.
Technology-led gains have put the Nasdaq on track for its best performance in May since 2020.
The Federal Deposit Insurance Corporation said U.S. banks' total deposits declined by a record 2.5% in the first quarter after two large bank failures.
The S&P 500 financial sector index .SPSY fell, with banks .SPXBK taking the brunt of the decline.
Advance Auto Parts Inc AAP.N plunged, falling the most on the S&P 500, after the auto parts retailer cut its full-year forecasts.
Other autoparts companies including Genuine Parts Co GPC.N, Autozone AZO.N and O'Reily Automotive ORLY.O also fell.
Hewlett Packard Enterprise Co HPE.N skidded after missing Wall Street estimates for second-quarter revenue.
Nvidia Corp's NVDA.O shares fell after hitting a record high thatbriefly boosted its market value above$1 trillion on Tuesday, fueled by betson the AI boom.
Intel wasthe biggest gainer on the S&P 500 as the chipmaker said it was on track to hit the upper end of its second-quarter revenue forecast.
S&P 500 sector performance for May https://tmsnrt.rs/42hpcW3
Reporting by Herbert Lash, additional reporting by Shreyashi Sanyal and Shashwat Chauhan in Bengaluru; Editing by Shounak Dasgupta, Maju Samuel and Richard Chang
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