New York: US stocks declined as disappointing results from Alcoa Inc. damped optimism over a rebound in earnings, while growing speculation that the Federal Reserve will raise interest rates this year undermined demand for riskier assets.

Alcoa tumbled the most since January after reporting a profit and sales that missed analysts’ estimates. Health-care shares were among the biggest losers, weighed down by Illumina Inc.’s 25 per cent plunge after it said sales were lower than anticipated. Commodity producers retreated as the dollar headed toward a two-month high. Apple Inc. added 1.6 per cent as Samsung Electronics Co. ended production of a troubled smartphone that was supposed to compete with the iPhone.

The S&P 500 Index fell 0.6 per cent to 2,151.49 at 10:05am in New York, after capping its third gain in four days on Monday. The Dow Jones Industrial Average lost 93.92 points, or 0.5 per cent, to 18,235.12. The Nasdaq 100 Index declined 0.5 per cent following a fresh record, its 13th this year and the most since the tech bubble.

“Alcoa is always the first off and seen as a bellwether for industrial demand,” Chris Gaffney, president of world markets at St. Louis-based EverBank, said by phone. “People need to see strong earnings, especially with the thought that rates will start moving higher. The environment for companies is going to get less accommodating. The drivers today and going forward are going to be earnings.”

Traders boosted odds for a December rate hike to 68 per cent, from 64 per cent on Friday and about 50 per cent two weeks ago as encouraging data signalled the US economy is strong enough to cope with higher borrowing costs. They are pricing in a 19 per cent chance of a move next month. Chicago Fed President Charles Evens told reporters in Sydney that a December move “could be fine,” after arguing in a speech to keep rates low until core inflation moves higher.

The S&P 500 trades at more than 18 times estimated earnings, compared with a 15.6 average for the past five years. Now that Alcoa has unofficially kicked off the earnings season, investors will be looking for signs of sustainable profit growth at S&P 500 members. While analysts forecast a 1.6 per cent contraction in third-quarter profits at the gauge’s members, US firms have beaten projections by an average margin of 3.6 percentage points in the past five years.

“I think the only rational for having valuations where they are is in the context of low interest rates,” said Mark Heppenstall, the Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management, which oversees about $20 billion. “However if the bond market begins to show signs of weakness that could spill over into pressure on equity prices.”

Investors will also look this week to minutes from the Fed’s September meeting, which will be released on Wednesday, and retail sales, producer prices and consumer sentiment reports due Friday, for clues on the health of the world’s biggest economy and the likely trajectory of interest rates.