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Nov PCE at 2.4% on yearly basis, below estimated 2.5%

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Lilly up after Novo Nordisk drug shows less weight loss in

trial

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FedEx ( FDX ) up after announcing freight truck division spinoff

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Indexes down: Dow 0.01%, S&P 500 0.24%, Nasdaq 0.66%

(Updates after markets open)

By Medha Singh and Purvi Agarwal

Dec 20 (Reuters) -

The S&P 500 and the Nasdaq dipped on Friday as fears over

high interest rates next year loomed, although a

cooler-than-expected inflation report kept losses in check.

A Commerce Department report showed the Personal Consumption

Expenditure (PCE) index, the Fed's preferred inflation measure,

rose 2.4% in November on an annual basis, below estimates of

2.5%, as per economists polled by Reuters.

After the data, traders raised their rate cut bets for

2025, now expecting a rate cut first in March and then again by

October. Before the data, there was about 50% chance of a second

rate cut by December 2025.

Wall Street was jolted this week after the Fed forecast

only two rate reductions in 2025 and raised its inflation

estimate, in a nod to the economy's continued resilience and

still-high inflation.

"Before that Fed meeting, inflation wasn't as much of a

concern and then the Fed told us that we don't think we've won

that battle yet," said Mike Dickson, head of research and

quantitative strategies at Horizon Investments.

"We have a lot more of balance between a healthy labor

market and their (the Fed's) concern for inflation. That makes

this report a little more important than it was."

At 9:43 a.m. ET, the Dow Jones Industrial Average

fell 3.46 points, or 0.01%, to 42,338.78, the S&P 500

lost 14.32 points, or 0.24%, to 5,852.76 and the Nasdaq

Composite lost 127.04 points, or 0.66%, to 19,245.73.

Most megacap and growth stocks were lower with Tesla

off 2.6% and Nvidia ( NVDA ) and Amazon.com ( AMZN )

down over 1% each.

Consumer discretionary and information

technology were the biggest sectoral decliners with an

over 0.7% loss each.

Meanwhile, the U.S. Congress was

scrambling

to avert a partial government shutdown before a midnight

deadline, after more than three dozen Republicans rejected a

demand by President-elect Donald Trump to use the measure to

lift the nation's debt ceiling.

"Potentially eliminating the debt ceiling is going to put

some upward pressure on interest rates that played a bit of a

role into how everything is trading," Dickson said.

San Francisco Federal Reserve Bank President Mary Daly

said

this week's decision to lower interest rates was a "close

call," and echoed Chair Jerome Powell's view that caution is now

warranted toward future moves.

The Nasdaq was set to fall for the first time in five weeks

and the S&P 500 was on pace for its worst week since

September. The Dow was on track for its sharpest weekly

fall since March 2023.

FedEx ( FDX ) jumped 3% after announcing the

much-anticipated spinoff of its freight trucking division, as it

restructures operations to focus on its core delivery business.

Eli Lilly ( LLY ) advanced 6.4% after Danish rival Novo

Nordisk's experimental next-generation obesity drug

achieved lower-than-expected weight loss in a late-stage trial.

Advancing issues outnumbered decliners by a 1.44-to-1

ratio on the NYSE and by a 1.19-to-1 ratio on the Nasdaq.

The S&P 500 posted no new 52-week highs and 21 new lows,

while the Nasdaq Composite recorded 12 new highs and 150 new

lows.