Wall Street dips, the dollar strengthens ahead of key inflation data

By Stephen Culp

NEW YORK (Reuters) -Wall Street softened and the dollar rebounded on Tuesday as investors looked ahead to key inflation data and further clues regarding the duration of the U.S. Federal Reserve's restrictive monetary policy.

All three major U.S. stock indexes started the session in negative territory, with Oracle Corp weighing on sentiment after the cloud services company forecast weaker-than-expected current quarter revenue, hinting at a broader softening of demand.

At the forefront of market participants' minds is the crucial Consumer Price Index (CPI) report expected on Wednesday, which should shed further light on the slow, downward path of inflation and provide some clarity regarding the direction of key interest rates.

One week from today, the central bank is due to convene its two-day policy meeting, at which the Fed is broadly expected to let current key interest rates stand.

"People are in a holding pattern waiting to understand policy, and policy goes back to inflation, the labor market, prices and consumer demand," said Bill Merz, head of capital markets research at U.S. Bank Wealth Management in Minneapolis. "The Fed is also in wait and see mode, they need to see how data evolves before claiming victory."

"(The Fed has) made good progress so far; it's that last mile of getting from 3% or 4% to 2%, that's grabbing the attention of investors," Merz added.

The Dow Jones Industrial Average fell 65.05 points, or 0.19%, to 34,598.67, the S&P 500 lost 18.73 points, or 0.42%, to 4,468.73 and the Nasdaq Composite dropped 86.98 points, or 0.62%, to 13,830.91.

European shares and were last slightly lower as strength in healthcare stocks was countered by tech weakness in the wake of Oracle revenue forecast.

The pan-European STOXX 600 index lost 0.16% and MSCI's gauge of stocks across the globe shed 0.33%.

Emerging market stocks lost 0.21%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.18% lower, while Japan's Nikkei rose 0.95%.

The greenback regained some ground against a basket of world currencies as the yen gave back some gains that were driven by comments from Japan's top banker suggesting a possible end to its negative interest rate policy.

"We would expect more currency volatility as we get to the point in the monetary cycle when central banks aren't moving in concert anymore, and we start to see more local differences that influence monetary decision-making processes," Merz said.

The dollar index rose 0.26%, with the euro down 0.32% to $1.0714.

The Japanese yen weakened 0.41% versus the greenback at 147.20 per dollar, while sterling was last trading at $1.2466, down 0.34% on the day.

U.S. Treasury yields were range-bound ahead of the Labor Department's CPI report.

Benchmark 10-year notes last fell 2/32 in price to yield 4.2941%, from 4.288% late on Monday.

The 30-year bond last fell 2/32 in price to yield 4.3801%, from 4.377% late on Monday.

Oil prices surged on a tighter supply outlook and a sunny global demand outlook from OPEC.

U.S. crude rose 1.99% to $89.03 per barrel and Brent was last at $92.08, up 1.59% on the day.

Gold prices retreated to a more than two-week low, weighed down by the strengthening greenback.

Spot gold dropped 0.6% to $1,911.10 an ounce.

(Reporting by Stephen Culp; Editing by Sharon Singleton)