By Caroline Valetkevitch and Amanda Cooper

NEW YORK LONDON (Reuters) -World stock indexes dropped on Thursday, with the Nasdaq down more than 2% after Facebook owner Meta Platforms and Microsoft both warned of rising costs for artificial intelligence, while the dollar weakened slightly after U.S. data did little to suggest a change to Federal Reserve policy.

The reports added to concerns among investors that the pay-off for heavy spending on AI may take longer than many had hoped.

Shares of Meta were down 3.2% while Microsoft was 5.6% lower, with both weighing on the Nasdaq and S&P 500.

All eyes will be on results from Amazon.com and Apple, when they report after the closing bell.

Data on Thursday showed U.S. consumer spending increased slightly more than expected in September, putting the economy on a higher growth trajectory heading into the final three months of the year.

“Spending has grown, but it’s increasingly concentrated in non-discretionary areas like health care, prescription drugs, housing, and utilities,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

The dollar also came under pressure against the yen after the Bank of Japan took a less dovish tone than expected, while the euro was stronger after data showed the bloc’s inflation accelerated more than expected in October, bolstering the case for caution in European Central Bank interest rate cuts.

The dollar index, which measures the greenback against a basket of currencies, was last flat at 104.13, with the euro up 0.1% at $1.0866. Against the Japanese yen, the dollar weakened 0.53% to 152.59.

Traders see a 25 basis point cut at the Fed’s Nov. 6-7 meeting as near certain, but only a 70% chance of a 25 basis point reduction at both its November and December meetings, according to the CME Group’s FedWatch Tool.

Friday’s U.S. jobs report for October will be closely watched as well as the U.S. presidential election on Tuesday.

Opinion polls still are putting Republican Donald Trump and Democratic Vice President Kamala Harris neck and neck.

On Wall Street, the Dow Jones Industrial Average fell 362.70 points, or 0.86%, to 41,778.84, the S&P 500 fell 84.93 points, or 1.46%, to 5,728.74 and the Nasdaq Composite fell 425.71 points, or 2.29%, to 18,182.22.

MSCI’s gauge of stocks across the globe fell 10.72 points, or 1.27%, to 834.22.

In Europe, the STOXX 600 hit its lowest in seven weeks in a heavy day for earnings. The STOXX 600 index fell 1.5%.

U.S. Treasury yields rose after the U.S. data showing falling wage inflation and strong consumer spending.

Benchmark 10-year yields were last up 4.4 basis points at 4.309%. They reached a nearly four-month high of 4.339% on Tuesday.

In cryptocurrencies, bitcoin fell 3.02% to $70,640.00. Ethereum declined 4.98% to $2,545.70.

Gold retreated after hitting a record high, but the precious metal was on track for its fourth straight monthly gain.

Spot gold was down 0.7% at $2,766.59 per ounce by 9:35 a.m. ET (1335 GMT), after hitting a record high of $2,790.15 during the session. Prices have firmed around 5% for the month so far.

U.S. crude rose 1.33% to $69.52 a barrel and Brent rose to $73.23 per barrel, up 0.94% on the day.

(Additional reporting by Karen Brettell in New York and Kevin Buckland in Tokyo and Wayne Cole in Sydney; Editing by Toby Chopra, Kirsten Donovan and David Gregorio)

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