MARKET SNAPSHOT: U.S. Stocks Weaken Ahead Of FOMC Meeting

By Anora Mahmudova and Barbara Kollmeyer, MarketWatch

NEW YORK (MarketWatch) -- The U .S. equity market opened lower on Tuesday, as investors remained risk averse and avoided tech and small-cap stocks.

The Federal Open Market Committee's two-day policy meeting begins Tuesday morning and many worry the policy makers will take a hawkish stand on interest rates. Also read: Eight keys to Fed's September meeting

The S&P 500 (SPX) opened 4 points, or 0.2%, lower at 1,980.

The Dow Jones Industrial Average (DJI) began the day down 38 points, or 0.2%, at 16,998.

The Nasdaq Composite (RIXF) dropped 15 points, or 0.4%, to 4,480, adding to sharp losses from the previous session.

Follow today's stock market coverage on our live blog.

In economic news, producer prices were flat in August thanks to falling gasoline and food costs, another sign that inflationary pressure is receding. It was the lowest reading in the producer price index since December, the Labor Department reported.

Tech and small-cap stocks led a mostly losing day on Wall Street on Monday, with the Nasdaq Composite (RIXF) dropping 1.07% as investors turned risk-averse ahead of the Fed meeting. Analysts are looking for a change in the Fed's language that could signal sooner-than-expected rate hikes.

Global Head of Asset Allocation at Societe Generale Alain Bokobza and his team advised investors to "switch out of expensive, illiquid and over-owned assets" like small-cap stocks and into large-cap equities in Europe and the U.S. "As the Fed continues to normalize its monetary policy, small caps are at risk of a large correction," he said. Read Need to Know: A dearth of deep-value plays

Data compiled by Bloomberg News showed 47% of stocks in the Nasdaq Composite are down at least 20% from their peak in the past 12 months, and more than 40% of Russell 2000 (RUT)members have fallen by as much. Meanwhile, the S&P 500 index has logged 33 new closing highs this year, and fewer than 6% of companies have entered what is considered bear-market territory, Bloomberg reported Monday.

Stocks to watch: Majesco Entertainment Co. (COOL) fell 14% after a similar drop late Monday when the video-game maker posted a larger-than-expected third-quarter loss.

Tesla Motors Inc. (TSLA) rose modestly after falling hard Monday on a Morgan Stanley note that said the electric-car maker's stock is overvalued. But Trip Chowdhry at Global Equities Research advised in a note Tuesday that investors buy Tesla on weakness, as he reiterated an overweight rating and a 12-to-18-month price target of $385. (Read more about the day's notable movers here: http://www.marketwatch.com/story/adobe-factset-earnings-in-spotlight-2014-09-16.)

Other markets:Asian stocks largely fell. China's largest wireless carrier China Mobile Ltd. tumbled 3.8% at the close, after reports said the release date for iPhone 6 in mainland China is still uncertain. Data out of China also showed that in August foreign direct investment fell to a four-year low. This followed weak factory data released over the weekend.

A disappointing German economic sentiment survey put pressure on already weak European stocks . Worries about this week's Scottish referendum continued to dull markets, also weighing some on U.S. stock futures.

Among currencies, the Russian ruble (USDRUB) continued to fall against the U.S. dollar, off another 1% as sanctions worries weighed. Gold(GCZ4) edged up on the heels of Monday's first win in five sessions.(RUT)

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