Stock index futures fell on Wednesday after Moody's downgrade of Portugal's credit rating to junk and China's interest rate rise triggered unease about global growth prospects.
Caution over the euro zone debt crisis resurfaced after Moody's cut the credit rating for Portugal by four notches to non-investment grade, warning the country may need a second round of rescue funds before it can return to capital markets.
The resolution of the Greek issues was always seen as likely to be temporary and the first in a series of crises that will hit the weaker euro countries, so Portugal just reminds people that the situation is not over, said Rick Meckler, president of LibertyView Capital Management in New York.
China's central bank increased interest rates for the third time this year on Wednesday, making clear that taming inflation is a top priority as its economy gently slows.
Concerning China, Meckler said, Just as important is China's attempt to slow its growth since in a world that has been facing slower growth, China has been the one exception. No one is quite sure of the impact that a slower China could have in terms of corporate profits.
S&P 500 futures dropped 6.7 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 49 points, and Nasdaq 100 futures declined 7 points.
U.S. economic data on tap for Wednesday includes the Institute for Supply Management's non-manufacturing index, due at 10 a.m. <1400 GMT>. The gauge is expected to show a slight dip to 54.0 in June from 54.6, according to a Reuters poll, the second-lowest reading since August.
Volume is expected to be low in the holiday-shortened week, which could increase volatility. Markets were closed on Monday for U.S. Independence Day.
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The Australian dollar fell to session lows after the China rate hike, while the euro and European stocks extended losses as investors cut exposure to riskier assets. <.EU>
Chinese banking shares fell for a second day after a sovereign fund unloaded a stake in two banks, flashing a cautious signal about risk. Japan's Nikkei stock index <.N225> bucked the trend, as investors scrambled to latch on to a 1.1 percent climb.
U.S. stocks ended a thinly traded session with little change on Tuesday as investors paused after last week's surge, though light volume suggested more choppy trading to come.
(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)