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Wall Street opened lower on Thursday, with investors taking a breather following yesterday’s rally that pushed all three major indices to new record highs.

The S&P 500 fell 0.3 per cent to 2,389.24 in early trading, weighed down by declines in the financials and the materials sectors. The Dow Jones Industrial Average dipped 0.1 per cent to 21,100.23, while the Nasdaq Composite dropped 0.3 per cent to 5,884.46.

The modest retreat comes as the case continues to strengthen for the Federal Reserve to raise interest rates this month. Data out earlier this morning showed that the number of Americans applying for first-time unemployment benefits fell to a near 44-year low last week, underscoring the strength of the US labour market.

The weekly jobless claims figures come on the heels of reports showing that the core personal consumption expenditures price index (PCE) – the Fed’ preferred inflation measure – has climbed to within a hair of the central bank’s 2 per cent inflation target. Elsewhere, a gauge of the US factory sector hit its highest level since August 2014.

The data, along with recent comments by Fed officials – including William Dudley, the president of the New York Fed – that the case for raising rates had become “a lot more compelling”, have sent odds of a rate hike this month sharply higher.

Federal fund futures are now pointing to a 90 per cent chance that the Fed officials will lifts rates when it meets in two-weeks’ time, according to Bloomberg calculations. That is up from 80 per cent the previous day and 40 per cent at the end of last week.

Bonds have been selling off in response. Yield on the more policy sensitive 2-year Treasury note rose to a fresh seven-and-a-half year high of 1.3289 per cent earlier in the day. Yield on the 10-year tacked on another 3.4 basis points to 2.487 per cent.

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