Wall Street pares losses on encouraging U.S. factory data

By Tanya Agrawal

REUTERS - U.S. stocks pared losses on Wednesday after encouraging factory data, but remained lower, with falling oil prices weighing on energy companies and financials retreating as chances of a rate hike this month ebbed on weak China data.

China's official factory activity gauge expanded only marginally in May, data showed, while a private survey showed conditions deteriorated for a fifteenth straight month, kindling fears of a global slowdown.

"We had some overnight data points out of China that gave investors some pause this morning," said Bill Northey, chief investment officer at U.S. Bank Private Client Group in Great Falls, Montana.

"I think there are some concerns regarding global growth and enough headwinds remain for some profit taking."

Data showed that while U.S. manufacturing activity expanded for a third straight month in May, growth in new orders continued to slow.

But, construction spending recorded its biggest decline in more than five years in April as spending fell broadly, which could prompt economists to lower their second-quarter growth estimates.

That could possibly stay the hand of the Federal Reserve, which caught investors off guard in May when it signaled its next rate hike could be as soon as its June 14-15 meeting.

Traders are now pricing only a 20 percent chance of a hike in June, down from a probability of around 32 percent on Monday, according to the CME Group FedWatch tool.

Crude prices fell on expectations of OPEC inaction on output due to its focus staying on market share, while China concerns weighed on the demand outlook. Exxon and Chevron were down about 1 percent. [O/R]

At 10:55 a.m. ET (1455 GMT) the Dow Jones industrial average was down 54.41 points, or 0.31 percent, at 17,732.79, while the S&P 500 was down 4.01 points, or 0.19 percent, at 2,092.95.

The Nasdaq Composite was down 2.95 points, or 0.06 percent, at 4,945.11. The index got a boost from Costco, which rose 2.6 percent after Goldman Sachs upgraded the stock to "buy".

Seven of the 10 major S&P sectors were lower, with the energy index's 0.84 percent fall leading the decliners.

The biggest drag on the S&P 500 was the financial index, which dropped 0.3 percent.

Handbag maker Michael Kors rose 5.8 percent to $45.02 after posting its strongest sales growth in a year and announcing a new share buyback.

Demandware soared 55.7 percent to $74.73 after Salesforce.com agreed to buy the company in a $2.8 billion deal. Salesforce was down 0.2 percent at $82.57.

Declining issues outnumbered advancing ones on the NYSE by 1,589 to 1,271. On the Nasdaq, 1,445 issues fell and 1,127 advanced.

The S&P 500 index showed five new 52-week high and one new low, while the Nasdaq recorded 28 new highs and 14 new lows.

(Reporting by Tanya Agrawal; Editing by Savio D'Souza)