Wall Street to open lower as Italy's budget, trade concerns weigh

By Amy Caren Daniel

(Reuters) - Wall Street was set to open lower on Friday, the last trading day of the third quarter, weighed by bank stocks as Italy's budget worries roiled financial markets and trade concerns hurt sentiment.

Italy's new government proposed a 2019 budget with a deficit three times bigger than the previous administration's target, sparking a sell-off in shares in Italian banks, whose big sovereign bond portfolios make them sensitive to political risk.

Yields on the benchmark 10-year Treasury bonds ticked lower and weighed on the shares of U.S. lenders, with Goldman Sachs, Wells Fargo and Bank of America, Citigroup and JP Morgan trading down between 0.34 percent and 0.90 percent before the bell.

Bank stocks were among the top losers on the S&P 100 and Dow Industrials in premarket trading.

"We are seeing safety trade due to the Italian crisis, people are coming in and buying U.S. paper and the dollar," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"This concern will probably last for a couple of days, but I don't see it turning into a full-blown crisis. This is an excuse for profit-taking and last minute window-dressing as the quarter draws to a close."

The CBOE Global Markets volatility index, Wall Street's "fear gauge", rose 5.88 percent, its biggest percentage rise in nearly two weeks.

Also weighing was a pullback in "FAANG" group of stocks - Facebook, Apple, Amazon, Netflix and Google-Parent Alphabet - which led a rally on Wall Street on Thursday.

President Donald Trump, who wanted major changes to the NAFTA, has already wrapped up a deal with Mexico and is due to publish the text on Friday. He has threatened to leave out Canada unless it signs up by Sunday.

At 8:43 a.m. ET, Dow e-minis were down 84 points, or 0.32 percent. S&P 500 e-minis were down 8.25 points, or 0.28 percent and Nasdaq 100 e-minis were down 26.5 points, or 0.35 percent.

So far, the benchmark S&P 500 index and the blue-chip Dow Jones Industrial Average index have risen 7.2 percent and 8.9 percent, respectively, in the quarter and were on track for their best third-quarter performance since 2010.

Tesla tumbled 12.5 percent after the U.S. Securities and Exchange Commission accused Chief Executive Elon Musk of fraud and sought to remove him from his role the electric car company.

Lowe's rose 1.2 percent after brokerage SunTrust Robinson upgraded the stock to "buy", citing acceleration in the company's earnings growth.

U.S. consumer spending increased steadily in August, while a measure of underlying inflation remained at the Federal Reserve's 2 percent target for a fourth straight month, a report by the Commerce Department showed.

(Reporting by Amy Caren Daniel in Bengaluru; Editing by Arun Koyyur)