US stocks closed out February in subdued fashion on Tuesday and each of the three major indexes ended with monthly declines, as investors continue to assess whether interest rates will remain high for an extended period of time.

After a strong performance in January, stocks retreated in February as economic data and comments from US Federal Reserve officials prompted market participants to reconsider the odds the central bank would hike rates to a higher level than market forecasts and keep them elevated for longer than was initially expected.

"The market in many ways expected things to go south more quickly, forcing the Fed to pivot, or pause, or cut rates sooner than the Fed was saying," said Johan Grahn, head ETF market strategist at Allianz Investment Management in Minneapolis.

"The staying power of the Fed is much more determined and steadfast than the staying power of investors so it’s back to the old mantra of do you really want to fight the Fed on this and in this case it is still a mistake to try and do that."

According to preliminary data, the S&P 500 lost 0.3 percent to 3,970, while the Nasdaq Composite lost 0.10 percent to 11,455. The Dow Jones Industrial Average fell 0.7 percent to 32,656.

Traders have started to price in the chances of a bigger 50 basis-point rate hike in March, although the odds remain low at about 23 percent, according to Fed fund futures, which suggest rates peaking at 5.4 percent by September, up from 4.57 percent now.

BofA Global Research cautioned the Fed could even hike interest rates to nearly 6 percent.

Economic data on Tuesday, however showed a reading of consumer confidence unexpectedly fell in February, while a gauge of home prices slowed further in December.

The blue-chip Dow dipped, weighed down by a drop in Goldman Sachs after Chief Executive David Solomon said the bank is considering "strategic alternatives" for its consumer business.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up slightly on the day. A pullback in yields following the economic data helped boost the S&P 500 and Nasdaq, but the two indexes faded late in the session.

Chicago Fed President Austan Goolsbee said the Fed must supplement traditional government data and readings from financial markets with real-time, on-the-ground observations of economic conditions if it is to make good policy, and not rely on market reactions.

Meta Platforms rose after the Facebook parent said it was creating a new top-level product group focused on generative artificial intelligence.

Target gained after the big-box retailer reported a surprise rise in holiday-quarter sales but cautioned on 2023 earnings due to an uncertain US economy.

Norwegian Cruise Line Holdings plunged after the cruise operator's full-year profit forecast fell short of estimates. It attributes the squeeze to soaring fuel and labour costs. (Reuters)