US STOCKS-US stocks drop on higher Treasury yields, caution ahead of Fed rate decision

By Johann M Cherian and Pranav Kashyap

Dec 8 (Reuters) - Wall Street's main indexes slipped on Monday, as Treasury yields gained and investors treaded cautiously ahead of what could be one of the most divisive Federal Reserve monetary policy decisions in years.

Delayed data last week showed that consumer spending increased moderately toward the end of the third quarter, giving investors greater confidence that the Fed will focus on lowering borrowing costs on Wednesday to shore up the labor market.

Inflation has so far proved sticky, making most policymakers cautious about lowering borrowing costs, although a few influential Fed policymakers have adopted a more dovish stance in recent weeks.

"Should four or more officials break ranks, it would mark the largest split since 1992," said a group of analysts at Deutsche Bank.

Traders are now pricing in an 89.6% chance of a 25-basis-point rate cut on Wednesday, up from as low as 30% in November, according to the CME's FedWatch Tool.

They will also closely scrutinize Chair Jerome Powell's comments that day to gauge the central bank's future policy path.

Meanwhile, a hostile bid from Paramount Skydance PSKY.O worth $108.4 billion for Warner Bros Discovery WBD.O, in a last-ditch effort to outbid Netflix, sent shares of the iconic Hollywood studio company up 4.8%.

Paramount's shares PSKY.O were up 7.6%, while Netflix's NFLX.O fell 4.6%.

With cash-rich companies like Paramount and Netflix, a bidding war is possible, but in the end, whoever secures those assets should boost that company's shareholder value, as long as they do not overpay, said Adam Sarhan, chief executive officer of 50 Park Investments.

At 11:47 a.m. ET, the Dow Jones Industrial Average .DJI fell 165.88 points, or 0.35%, to 47,789.11, the S&P 500 .SPX lost 22.31 points, or 0.32%, to 6,848.09 and the Nasdaq Composite .IXIC lost 42.24 points, or 0.18%, to 23,535.38.

Higher yields on U.S. Treasury bonds also limited equities after a powerful earthquake struck Japan. Higher spending on restoration projects following a natural disaster is generally viewed as inflationary.

Most of the 11 S&P 500 sectors declined, led by a 1.5% drop in communication services .SPLRCL.

Monday also saw Oppenheimer set a year-end 2026 target for the S&P 500, forecasting a Street high of 8,100 points, aided by strong earnings and macro resilience.

Later this week, the focus will shift to tech sector valuations, with earnings expected from Broadcom AVGO.O and Oracle ORCL.N, as investors worry over debt-funded artificial intelligence spending and complex corporate deals.

Broadcom AVGO.O gained 2.8% after a report said Microsoft MSFT.O is in talks with the company about developing custom chips.

Chipmaker Marvell Technology MRVL.O fell 10% after losing out on a spot on the S&P 500.

Confluent gained 29% after IBM said it will acquire the data-infrastructure company for about $11 billion. Big Blue gained 1.5%.

Tesla TSLA.O lost 3.5% following Morgan Stanley's bearish view on the electric-vehicle maker.

Used-car dealer Carvana jumped 11% after securing a spot in the S&P 500.

Declining issues outnumbered advancers by a 1.72-to-1 ratio on the NYSE and by a 1.13-to-1 ratio on the Nasdaq.

The S&P 500 posted 20 new 52-week highs and eight new lows, while the Nasdaq Composite recorded 129 new highs and 50 new lows.