Wall Street falls after North Korea missile test

NEW YORK (REUTERS) - Stocks in the United States opened lower on Friday amid investor caution following a nuclear test by North Korea and comments by a US Federal Reserve official that supported an interest rate hike.

North Korea conducted its fifth and biggest nuclear test on Friday and said it had mastered the ability to mount a warhead on a ballistic missile, drawing condemnation from the United States as well as China, Pyongyang's main ally.

"The timing of North Korea flexing their nuclear muscles is interesting in that it comes on the heels of the leader of the free world's trip to Asia," said Art Hogan, chief market strategist at Wunderlich Securities in New York. He was referring to President Barack Obama, who arrived in Asia last week to attend a G20 meeting before touring other Asian nations.

"So that is in and of itself kind of insulting but it's also disturbing if they are making significant traction here, but it's hard to know."

Futures extended losses after Boston Fed President Eric Rosengren, a historically dovish policymaker, said the Federal Reserve increasingly faces risks if it waits too much longer so a gradual policy tightening is likely appropriate, although he said the Fed was unlikely to raise too rapidly.

The Dow Jones industrial average fell 135.26 points, or 0.73 per cent, to 18,344.65, the S&P 500 lost 17.43 points, or 0.8 per cent, to 2,163.87 and the Nasdaq Composite dropped 38.07 points, or 0.72 per cent, to 5,221.42.

The Fed will hold a two-day policy meeting on Sept. 20-21. Expectations for a rate hike had climbed in recent weeks after comments from a number of Fed officials, only to be tamped down again in the past several days after a host of disappointing economic reports. The current expectations for a September rate hike stand at 18 per cent, according to CME's FedWatch tool.

US stocks have been subdued for two months, with the benchmark S&P 500 index failing to register a move of more than 1 percent on a closing basis in either direction since July 8. The index is roughly 1 per cent away from its last record high registered on Aug. 15.