US stocks closed slightly lower on Wednesday, a day ahead of a key inflation reading that could heavily influence expectations for the timing of an interest rate cut from the Federal Reserve.

The personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, is expected to show prices ticked 0.3 percent higher on a monthly basis in January.

Stocks have struggled to retain upward momentum in recent days leading up to the data after a lengthy rally peaked last week on enthusiasm around the potential for artificial intelligence (AI), fueled by Nvidia's quarterly earnings.

Evidence of stubborn inflation in recent data on consumer and producer prices, a resilient US economy, and commentary from some Fed officials have caused the market to dial back expectations for the Fed's first rate cut to June from March.

"Now that those earnings catalysts are behind us in the rearview mirror there could be some softness as now the market has to get its arms around the inflation trajectory and the Federal Reserve's reaction, whether it's with rhetoric or a higher-for-longer policy," said Keith Buchanan, senior portfolio manager at GLOBALT Investments in Atlanta.

"Any embers or symptoms of resurgence in pockets, or in aggregate, of inflation will definitely be taken pretty harshly by the markets."

The Dow Jones Industrial Average fell 0.06 percent, to 38,949, the S&P 500 lost 0.17 percent, to 5,070 and the Nasdaq Composite lost 0.55 percent, to 15,948.

Data on Wednesday confirmed the US economy grew at a solid clip in the fourth quarter on strong consumer spending but it appears to have lost some speed early in 2024.

Along with the PCE data, reports for weekly initial jobless claims and manufacturing activity are due this week and will also help gauge the economy's strength and path of interest rates.

UnitedHealth fell 2.95 percent as the biggest drag on the Dow and one of the largest on the S&P 500 after a report on Tuesday said the US Department of Justice had launched an antitrust investigation into the healthcare conglomerate. (Reuters)