Wall St slips as higher oil prices, Fed bets weigh

The main US stock indices have dropped after military strikes between the United States and Iran drove up oil prices, fanning inflation worries after Fed chair Kevin Warsh's hawkish remarks in his first Jackson Hole address the previous week.

The losses could set the tone for September, typically a weak month for equities, and are likely to up the ante at the US Federal Reserve's meeting next month.

Traders are pricing in a more than 60 per cent chance of a rate hike at the Fed's September meeting, according to CME's FedWatch, a sharp increase from 41.4 per cent a week ago, after Warsh said policymakers may need to increase borrowing costs if inflation does not ease to the central bank's 2.0 per cent target.

"He (Warsh) took any chance of a (rate) cut off the table," said Thomas Kikis, head of markets, US and Americas, at Standard Chartered.

Warsh's comments, delivered on Friday at the Fed's Jackson Hole symposium, came after mixed data in recent weeks.

A consumer inflation report this month showed price pressures were mild in July, but the Personal Consumption Expenditures reading, the Fed's preferred gauge, was hotter than expected.

The ambiguity could raise the stakes for the monthly US employment report, due on September 4.

Recent reports did not indicate that "underlying trends have meaningfully improved," Warsh said on Friday.

"Absent a material downside surprise, the onus is now on Warsh to deliver a September hike. Otherwise, he risks undermining some of the credibility he gained on Friday," analysts at BofA Global Research said in a note.

In early trading on Monday, the Dow Jones Industrial Average fell 350.75 points, or 0.65 per cent, to 53,209.24, the S&P 500 shed 30.49 points, or 0.40 per cent, to 7,681.27, and the Nasdaq Composite lost 77.11 points, or 0.29 per cent, to 26,325.31.

The benchmark S&P 500 and the tech-heavy Nasdaq were on track for monthly gains after two straight months of decline, while the Dow was headed for a fifth consecutive monthly rise.

Military clashes between the US and Iran resumed in the Middle East, where disruption in the Strait of Hormuz has impeded oil shipments.

Energy stocks were up following nearly a 1.71 per cent jump in Brent crude prices, with Halliburton and Valero Energy climbing 4.26 per cent and 1.90 per cent respectively.

Utilities led sector declines, falling 1.7 per cent after an amendment to a Senate bill in California did little to alter the exposure of grid operators in the state to wildfire liabilities.