By Anora Mahmudova and Barbara Kollmeyer, MarketWatch

Pare losses as oil futures spike higher

A surge in oil prices lifted energy stocks, limiting overall market losses on Wall Street Monday. However, the main indexes remained under pressure, as investors continued to fret about a slowdown in China and the possibility that the Federal Reserve might increase interest rates next month.

The main indexes were on track to end August down by around 6% or more.

The S&P 500 was off 7 points, or 0.3% to 1,982, with nine of its 10 main sectors trading lower. Energy stocks rallied after a surge in oil futures (http://www.marketwatch.com/story/oil-futures-spike-sharply-higher-after-eia-reports-monthly-output-declines-2015-08-31). The Dow Jones Industrial Average fell 41 points, or 0.2%, to 16,602 with nearly all of its 30 members trading lower. The Nasdaq Composite fell 11 points, or 0.2% to 4,817.

According to Sam Stovall, U.S. equity strategist at S&P Capital IQ, the worst of the selloff may be yet to come.

In a note to clients Stovall wrote that "in the 11 times that the S&P 500 fell by more than 5% in August, it declined 80% of the time in September and fell an average of nearly 4%," implying that this correction probably has further to go.

Monday's slump follows declines in global equity markets. The Shanghai Composite slid 12.5% during August, and lost more ground on Monday (http://www.marketwatch.com/story/asian-stocks-poised-for-worst-month-in-more-than-three-years-2015-08-31). Stocks were hit by a report in the Financial Times that the Chinese government will no longer make large stock purchases to prop up the markets (http://www.marketwatch.com/story/china-wont-be-propping-up-its-stock-market-with-big-stock-buys-report-2015-08-31).

"It seems like we simply need a reason to panic these days," Chris Weston, chief market strategist at IG, said in a note.

Investors had to know that the government wasn't going to keep pouring money into stock markets, he wrote. "Still, the fact that the mainland markets are down seems driven by the idea that officials have moved to a more reactive function and there is a general concern of policy missteps."

Meanwhile, the weekend economic symposium in Jackson Hole, Wyo., sponsored by the Federal Reserve Bank of Kansas City, only "increased the level of uncertainty" over the next move in U.S. interest rates, said Nour Al-Hammoury, chief market strategist at ADS Securities, in a note. "The markets are waking up to the reality that there is no clear direction being set by the bankers or the Fed."

Read: Jackson Hole roundup: No clear path for Fed in September (http://www.marketwatch.com/story/jackson-hole-roundup-no-clear-path-for-fed-in-september-2015-08-29)

Nonetheless, Goldman Sachs is sticking to its year-end 2015 S&P target of 2,100, which reflects upside of 6% from here, David Kostin, its chief U.S. equity strategist, said in a note on Monday. "Continued positive macro data will be essential if our forecast is to be realized," he said.

Kostin said a risk to that forecast would be negative earnings pre-announcements during the last two weeks of September, ahead of the third-quarter reporting season.

Analysts said investors would be looking to Friday's nonfarm payroll jobs data for the next clues (http://www.marketwatch.com/story/jobs-report-could-prevent-rate-hike-but-unlikely-to-ensure-one-2015-08-30) about what will happen at September's Fed meeting. A disappointing number could lend credence to those who believe the Fed should not rush into raising rates. Economists polled by MarketWatch are forecasting a gain of 223,000 for August after 215,000 jobs were added in July.

Read: Jobs report could prevent rate increase--but unlikely to ensure one (http://www.marketwatch.com/story/jobs-report-could-prevent-rate-hike-but-unlikely-to-ensure-one-2015-08-30)

(http://www.marketwatch.com/story/jobs-report-could-prevent-rate-hike-but-unlikely-to-ensure-one-2015-08-30)In economic news, the Chicago PMI, or business barometer index (http://www.marketwatch.com/story/chicago-pmi-business-index-falls-slightly-to-544-in-august-2015-08-31), fell slightly in August but showed that the economy in the Midwest continued to grow at a moderate pace toward the end of summer.

Stocks to watch: Staples Inc. (SPLS) and Office Depot (ODP) said late Friday they will delay the closing of their merger (http://www.marketwatch.com/story/staples-office-depot-to-delay-close-of-merger-on-ftc-request-2015-08-28) to provide the Federal Trade Commission with more information on the deal. Shares in Staples rose 1.4%.

Twitter Inc.'s stock(TWTR) jumped 2.8% after the social-networking company was upgraded at SunTrust Robinson Humphrey (http://www.marketwatch.com/story/twitters-stock-jumps-after-analyst-upgrade-2015-08-31). The firm cited a series of potential positive catalysts and a "washed out" valuation.

Other markets: Japan's Nikkei 225 index dropped 1.3%, and lost 8.2% for the month of August (http://www.marketwatch.com/story/asian-stocks-poised-for-worst-month-in-more-than-three-years-2015-08-31). The Europe Stoxx 600 index dropped 0.2%, with the German DAX 30 index down 0.6% as major oil companies across Europe dropped. U.K. markets are closed for a holiday.

Meanwhile, U.S. Treasurys rose (http://www.marketwatch.com/story/treasurys-buoyed-as-investors-look-ahead-to-payrolls-2015-08-31), sending the yield on the 10-year note down 4 basis points to 2.14%. Crude for October delivery erased substantial early losses to trade more than 5% higher on the day after data showed declining U.S. oil output.

The dollar was marginally weaker across major currencies, while gold prices were also slightly off.

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(END) Dow Jones Newswires

August 31, 2015 12:27 ET (16:27 GMT)

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