February 1, 2018 / 2:58 PM / 10 months ago

US STOCKS-Wall St opens lower on hawkish Fed, tepid earnings

* UPS falls as higher costs hurt profit

* Apple, Alphabet, Amazon to report after the bell

* Indexes down: Dow 0.41 pct, S&P 0.15 pct, Nasdaq 0.27 pct (Updates to open)

By Tanya Agrawal

Feb 1 (Reuters) - U.S. stocks opened lower on Thursday, following a string of lackluster earnings and after the Federal Reserve raised its inflation outlook and flagged “further gradual” interest rate hikes.

Wall Street gave up early gains on Wednesday to finish marginally higher after the Fed kept rates unchanged, but struck a more hawkish tone than expected, no longer saying it expected price growth to stay below 2 percent.

“Janet Yellen, made pretty much clear in her last meeting (as Fed Chair) that the economy warrants more rate hikes,” said Naeem Aslam, chief market analyst at Think Markets.

“The Trump administration’s tax incentive plan has strengthened the inflation equation and this allows the Fed to move the interest rate to a more normal level.”

Equity markets are torn between buoyant economic growth and double-digit company earnings, and the possibility that U.S. and euro zone central banks will tighten policy faster than expected, which is pushing up bond yields.

Benchmark 10-year U.S. Treasury yields held near four-year highs after the Fed’s statement. Rising yields have pummeled the stock market through this week, despite strong corporate earnings report.

A report showed weekly jobless claims unexpectedly fell, pointing to a tight labor market and strong economy.

However, nonfarm productivity fell 0.1 percent in the fourth quarter, which was the first drop since the first quarter of 2016 and unit labor costs rose 2.0 percent in the final three months of 2017. Higher labor costs could signal faster inflation than is currently anticipated.

At 9:37 a.m. ET (1437 GMT), the Dow Jones Industrial Average was down 91.9 points, or 0.35 percent, at 26,057.49, the S&P 500 was down 2.26 points, or 0.08 percent, at 2,821.55.

The Nasdaq Composite was down 10.55 points, or 0.14 percent, at 7,400.93.

Six of the 11 major S&P indexes were higher, with the telecommunications index’s 2.02 percent rise leading the advancers.

Strong fourth-quarter reports from S&P 500 companies so far have pushed up analysts’ profit growth estimate to 13.7 percent, from 12 percent at the start of the month

Shares of Facebook rose 2.3 percent after the company forecast rising ad sales despite a dip in usage on the social media network.

But not all earnings reports from marquee companies impressed.

UPS dropped 6.2 percent after the world’s largest package delivery company reported a fourth-quarter net profit that was hurt by additional costs.

FedEx fell 0.8 percent. The two rivals are often seen as an indicator of U.S. economic activity and consumer spending.

EBay jumped 13.2 percent after posting higher revenue. But PayPal fell 7.8 percent after former parent eBay said it planned to move to a new primary payment processor.

Industry heavyweights Apple, Alphabet and Amazon are due to report results after the bell.

Declining issues outnumbered advancers on the NYSE by 1,565 to 1,011. On the Nasdaq, 1,578 issues fell and 788 advanced.

The S&P 500 index showed 10 new 52-week highs and 3 new lows, while the Nasdaq recorded 22 new highs and 23 new lows. (Reporting by Tanya Agrawal in Bengaluru; Editing by Savio D’Souza)

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