It came as markets await US inflation data that could lead the Federal Reserve to further tighten its aggressive plans to curb inflation.

High inflation numbers on Wednesday, following last week's blowout jobs report, would likely stop the Fed from easing interest rates hikes and halt a nascent recovery in stocks.

Traders see a 68.5 per cent chance of the Fed raising rates by 75 basis points in September, in what would be its third big hike in a row.

Adding to concerns of a tight labour market and runaway inflation, data on Tuesday showed an acceleration of unit labour costs in the second quarter, which suggested strong wage pressures will help keep inflation elevated.

Unit labour costs - the price of labour per single unit of output - rose at a 10.8 per cent rate, following a 12.7 per cent rate of growth in the first quarter, the Labor Department said.

"We're still seeing wage pressure building, using last Friday's job data as a gauge," said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.

While Chang remains cautious about the market's outlook, he said "I don't think it's going to be a set of numbers that will change the Fed's policy course."

The Dow Jones Industrial Average fell 65.41 points, or 0.2 per cent, to 32,767.13, while the S&P 500 lost 19.78 points, or 0.48 per cent, to 4,120.28 and the Nasdaq Composite dropped 154.45 points, or 1.22 per cent, to 12,490.01.

Seven of the 11 major S&P 500 sectors fell, with consumer discretionary, information technology and communication services down between 0.8 per cent and 1.6 per cent.

Micron Technology slid 3.7 per cent after the memory-chipmaker cut its fourth-quarter revenue forecast and warned of negative free cash flow the following quarter as demand ebbs for chips used in personal computers and smartphones.

Micron's warning, a day after Nvidia Corp forecast weakness in its gaming business, knocked the Philadelphia Semiconductor index 4.39 per cent lower, with all 30 components down. The index has fallen almost 8 per cent the past three days.

"It does add to a general growing realization that the move the market experienced in July was probably more of a counter-trend rally in a deteriorating economic situation for both companies (Micron and Nvidia)," said Robert Stimpson, chief investment officer at Oak Associates Funds.

President Joe Biden signed a sweeping bill to provide $52.7 billion in subsidies for US semiconductor production and research, a measure that gained bipartisan support to combat China's investment in technology.

"It's utterly discounted," said Michael Shaoul, chief executive officer at Marketfield, on why chip stocks were unfazed by the bill.

Rate-sensitive growth and technology stocks slipped as US Treasury yields climbed, with megacaps such as Amazon.com and Tesla down more than 1 per cent each.

Despite a choppy recovery since mid-June, the benchmark index is down 13.5 per cent this year after hitting a record high in early January as surging consumer prices, hawkish central banks and geopolitical tensions weigh.

Stronger-than-expected earnings from corporate America have been a positive, with 77.5 per cent of S&P 500 companies beating earnings estimates, according to Refinitiv data as of Friday.

Occidental Petroleum rose 3.5 per cent to $62.14 after Warren Buffett's Berkshire Hathaway increased its stake to 20.2 per cent of outstanding shares. Occidental's shares have more than doubled in price this year.

US vaccine maker Novavax slumped 30.3 per cent after it halved its annual revenue forecast as it does not expect further sales of its COVID-19 shot this year in the United States amid a global supply glut and soft demand.

Declining issues outnumbered advancing ones on the NYSE by a 2.10-to-1 ratio; on Nasdaq, a 2.64-to-1 ratio favoured decliners.

The S&P 500 posted four new 52-week highs and 30 new lows; the Nasdaq Composite recorded 41 new highs and 62 new lows.

Australian Associated Press