Wall Street slips on world economy jitters

NEW YORK (Reuters) : U.S. stocks fell slightly on Wednesday after Moody’s downgrade of Portugal’s credit rating to “junk” and China’s interest rate rise sparked jitters about global growth prospects.

The downgrading of Portugal’s credit rating to “junk” shocked financial markets and cast new doubt on European efforts to rescue distressed euro zone states without debt restructuring.

“The European debt crisis continues, those problems are still out there,” said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.

“Something had to stop us -- we were getting overbought here on the S&P’s, so that will be our excuse of the day.”

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.

“It is expected but it’s not a positive, maybe it doesn’t say sell, but it definitely doesn’t say buy,” said Lesh.

The Dow Jones industrial average dropped 7.57 points, or 0.06 percent, to 12,562.30. The Standard & Poor’s 500 Index dropped 2.96 points, or 0.22 percent, to 1,334.92. The Nasdaq Composite Index dropped 3.97 points, or 0.14 percent, to 2,821.80.

U.S. economic data on tap 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.

Banks were among the worst performers, with the KBW Bank index and S&P financial sector index each off 0.8 percent. JPMorgan Chase & Co fell 1.3 percent to $40.48.