By Johann M Cherian and Purvi Agarwal

(Reuters) -U.S. stock index futures dipped on Wednesday after geopolitical tensions in the Middle East and a domestic port strike made investors wary ahead of labor data expected to shed light on the health of the economy and the monetary policy path.

Wall Street’s main indexes had a dour start to the final quarter of the year, with the S&P 500 and the Nasdaq touching about two-week lows in the previous session, as investors sold riskier assets after Iran fired missiles against Israel in retaliation for its attacks in Lebanon.

Markets held their ground as Israel and the U.S. vowed to strike back. However, oil prices climbed more than 3% as traders priced in possible supply disruptions from the oil-rich region. Oil stocks such as SLB and Occidental Petroleum added 2.3% and 1.6%, respectively, in premarket trading. [O/R]

Defense stocks such as Lockheed Martin and RTX gained 1.1% and 1.3%, respectively, after the broader S&P 500 aerospace and defense index hit a record high in the previous session.

“The situation remains highly volatile, but if Israel’s response is not too aggressive, markets may take the view that both countries are for the second time this year preferring to de-escalate after a brief hostile exchange,” analysts at ING bank said.

At 07:08 a.m. ET, Dow E-minis were down 168 points, or 0.40%, S&P 500 E-minis were down 15.5 points, or 0.27% and Nasdaq 100 E-minis were down 43.5 points, or 0.22%.

Futures tracking the small-cap Russell 2000 index slipped 0.7%, while safe-haven Treasury bonds dipped after Tuesday’s surge. [US/]

The CBOE Volatility Index, Wall Street’s fear gauge, hovered near a three-week high and was last at 19.4.

In economic data, the ADP National Employment survey for September is due at 08:15 a.m. ET, ahead of the pivotal non-farm payrolls data for September, which is expected on Friday.

Comments from policymakers including Beth Hammack, Alberto Musalem, Michelle Bowman and Thomas Barkin are scheduled through the day.

Markets ended September higher after the U.S. Federal Reserve kicked off its monetary policy-easing cycle with an unusual 50-basis-point rate cut in an effort to shore up the jobs market, which has taken on a greater importance in the central bank’s dual mandate of price stability and low unemployment.

Odds of a quarter-percentage-point rate reduction at the Fed’s November meeting are at 63.2%, up from 42.6% a week ago, according to the CME Group’s FedWatch Tool.

Investors also monitored a dockworkers’ strike on the East and Gulf coasts which entered its second day. The walkout could cost the American economy roughly $5 billion a day, analysts at JPMorgan estimated.

Some companies such as Walmart, Merit Medical Systems and McCormick said they had planned for the strike. Their shares were flat in premarket trading.

Analysts said the spike in oil prices, along with the port strike, could raise inflation, which neared the central bank’s 2% target recently.

Dow-component Nike slid 5.6% after withdrawing its annual revenue forecast just as a new CEO is set to take the helm.

Humana tanked 11% after it said it expects the total number of members enrolled in its Medicare Advantage plans for those aged 65 and above to decrease for 2025.

(Reporting by Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Pooja Desai)

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