US STOCKS-Futures pare losses as inflation report lifts rate cut bets

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By Medha Singh and Purvi Agarwal

Dec 20 (Reuters) - Wall Street's main indexes were set to fall at the open on Friday on fears over high interest rates next year although a cooler-than-expected inflation report kept losses in check.

U.S. stock index futures pared losses after 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.

"On the margin that means that we have a lot more of balance between a healthy labor market and their concern for inflation."

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.

At 8:54 a.m., Dow E-minis 1YMcv1 were down 148 points, or 0.35% and the S&P 500 E-minis were down 0.54% to 5,902 points. Nasdaq 100 E-minis NQcv1 were down 174.5 points, or 0.82%.

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.

"We doubt there will be a new agreement in time to avert a partial shutdown after December 20, but we expect a new spending bill around the end of the year," Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, said in a note.

The Nasdaq was set to fall for the first time in five weeks and the S&P 500 .SPX was on pace for its worst week since September. The Dow .DJI was on track for its sharpest weekly fall since March 2023.

Wall Street firms are mostly projecting gains for the stock market next year, with year-end targets for the S&P 500 ranging from 6,000 to 7,000. The index was last hovering around 5,900.

Most megacap and growth stocks were lower in premarket trading, with Tesla TSLA.O, Nvidia NVDA.O and Amazon.com AMZN.O off about 1% each.

Nike NKE.N dropped 5% after the sportswear seller forecast revenue would fall by low double-digits in the third quarter.

FedEx FDX.N jumped 8.2% 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.N advanced 6.4% after Danish rival Novo Nordisk's NOVOb.CO experimental next-generation obesity drug achieved lower-than-expected weight loss in a late-stage trial.

(Reporting by Medha Singh and Purvi Agarwal in Bengaluru; Editing by Maju Samuel)

((Medha.Singh@thomsonreuters.com; +91 80 6210 0592; X, formerly Twitter: @medhasinghs; Purvi.Agarwal@thomsonreuters.com))