Wall Street falls after North Korea test, Fed comments

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks opened lower on Friday amid investor caution following a nuclear test by North Korea and comments by a U.S. Federal Reserve official that supported an interest rate hike.

North Korea conducted its fifth and biggest nuclear test on Friday and said it had mastered the ability to mount a warhead on a ballistic missile, drawing condemnation from the United States as well as China, Pyongyang's main ally.

"The timing of North Korea flexing their nuclear muscles is interesting in that it comes on the heels of the leader of the free world's trip to Asia," said Art Hogan, chief market strategist at Wunderlich Securities in New York. He was referring to President Barack Obama, who arrived in Asia last week to attend a G20 meeting before touring other Asian nations.

"So that is in and of itself kind of insulting but it's also disturbing if they are making significant traction here, but it's hard to know."

Futures extended losses after Boston Fed President Eric Rosengren, a historically dovish policymaker, said the Federal Reserve increasingly faces risks if it waits too much longer so a gradual policy tightening is likely appropriate, although he said the Fed was unlikely to raise too rapidly.

The Dow Jones industrial average fell 135.26 points, or 0.73 percent, to 18,344.65, the S&P 500 lost 17.43 points, or 0.8 percent, to 2,163.87 and the Nasdaq Composite dropped 38.07 points, or 0.72 percent, to 5,221.42.

The Fed will hold a two-day policy meeting on Sept. 20-21. Expectations for a rate hike had climbed in recent weeks after comments from a number of Fed officials, only to be tamped down again in the past several days after a host of disappointing economic reports. The current expectations for a September rate hike stand at 18 percent, according to CME's FedWatch tool.

U.S. stocks have been subdued for two months, with the benchmark S&P 500 index failing to register a move of more than 1 percent on a closing basis in either direction since July 8. The index is roughly 1 percent away from its last record high registered on Aug. 15.

Data due on Friday includes July wholesale inventories at 10 a.m. EDT (1400 GMT), which are not expected to have changed from the prior month.

Also due is the weekly rig count from Baker Hughes at 1 p.m. EDT (1700 GMT), which could impact the price of oil after both Brent and U.S. prices surged more than 4 percent Thursday in the wake of a surprisingly huge drawdown in U.S. crude stocks.

Restoration Hardware shares surged 10.1 percent to $38.85 after second-quarter earnings topped Wall Street expectations.

Pipeline company Enterprise Products Partners late Thursday withdrew its takeover bid for rival Williams Cos Inc, saying Williams' lack of engagement left it with "no actionable path forward."

Enterprise shares shed 0.4 percent while Williams lost 2.8 percent.

(Reporting by Chuck Mikolajczak; Editing by Bernadette Baum and Nick Zieminski)