While you were sleeping: Caterpillar drops

Wall Street dropped ahead of a speech by US Federal Reserve chairwoman Janet Yellen, while shares of Caterpillar sank after the company downgraded its full-year earnings forecast and announced plans to cut jobs.

Mrs Yellen was set to speak after the market close, a week after the central bank kept its target interest rate steady amid concern about the global economy.

Traders are pricing in about a 40% chance of an increase in December, down from 49% as recently as Monday and a 48% probability in January, according to Bloomberg.

At the Wall Street close, the Dow Jones Industrial Average was down 78.57 poibnts, or 0.5%, to 16,201.32 after earlier losing up to 264 points.

The Standard & Poor's 500 Index slipped 0.3% to 1932.24, while the Nasdaq Composite Index fell 0.4% to 4734.48.

"You need to see better China data and more certainty about the Fed," Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St Louis, Missouri, told Reuters.

Declines in shares of Caterpillar and those of Goldman Sachs, last down 5.9% and 1.5% respectively, helped propel the Dow lower.

Caterpillar also said it may axe as many as 10,000 jobs through 2018.

"The [Caterpillar] news is not helping matters, it's emblematic of a weaker global economy," Joseph Quinlan, chief market strategist for US Trust, in New York, told Reuters.

Shares of Chevron and those of Exxon Mobil bucked the trend, last trading 1.4% and 1.1% higher respectively.

The latest US economic data were mixed.

A Commerce Department showed orders for durable goods dropped 2% in August, following a 1.9% gain in July, while a separate report showed new home sales climbed 5.7% in August to an annual pace of 552,000, the highest level since 2008.

A Labor Department report showed initial claims for state unemployment benefits rose by 3000 to a seasonally adjusted 267,000 for the week ended September 19.

In Europe, the Stoxx 600 Index finished the session with a 2.1% slide from the previous close. The UK's FTSE 100 Index shed 1.2%, while France's CAC 40 Index and Germany's DAX Index each slid 1.9%.

Shares of BMW sank 5.2% following a report by Autobild that diesel emissions from a BMW X3 model exceeded European Union limits by as much as 11 times in a test by the International Council on Clean Transportation.

"I think we're going to see the automakers weighing on the market much more in the coming weeks," Barthelemy Debray, a fund manager at Old Mutual Global Investors in London, told Bloomberg.

"We've heard nothing from auto suppliers and from auto manufacturers. I think they are in crisis mode. I think this is just the beginning."

(BusinessDesk)