By Johann M Cherian and Purvi Agarwal

(Reuters) -Wall Street was set for a subdued start on Wednesday, with investors awaiting further indicators on the state of the economy and potential interest rate reductions, a week after the Federal Reserve initiated its policy relaxation cycle.

The benchmark S&P 500 and the Dow closed at record highs for the second straight time in the previous session, with most of the heavy lifting done by mining stocks after China unveiled a large stimulus package.

However, a weak consumer sentiment report fanned concerns about the labor market's health among investors who are worried if the Fed's decision to cut rates by a rare 50 basis points in the previous week was due to a sharp slowdown in the economy.

"For now the data suggests we're in a soft landing scenario. But I wouldn't be surprised if the data changes quickly. Then the Fed is going to have to get more or less aggressive in cutting rates," said Adam Sarhan, chief executive officer of 50 Park Investments.

Odds that the central bank will lower borrowing costs by another 50 basis points at its November meeting have ticked up to 58.2%, from a coin toss earlier in the week, as per the CME Group's FedWatch Tool. Traders see borrowing costs falling by nearly 79 bps before the year ends, as per LSEG data.

The yield on long-term Treasury bonds ticked higher on worries that looser financial conditions could re-ignite inflation. [US/]

Dow E-minis were down 8 points, or 0.02%, S&P 500 E-minis were down 2.25 points, or 0.04% and Nasdaq 100 E-minis were down 22.5 points, or 0.11%.

The S&P 500 and the Nasdaq, having rallied through most of the previous months, are up about 20% so far in the year on expectations of interest rate cuts and on optimism that artificial intelligence integration could boost corporate profits.

The S&P 500 is also trading at valuations high above longterm averages, and analysts forecast further upside momentum for stocks to be weak.

On the day, data on new home sales for August are expected at 10:00 a.m. ET. However, the next test for markets will be weekly jobless claims and personal consumption expenditure data for August due later in the week.

Sarhan said that if multiple reports show inflation trending higher, the Fed might reverse its stance and either hold rate steady or raise rates by a quarter percentage point.

Remarks from Fed Governor Adriana Kugler, due after markets close, will also be parsed. But the spotlight will remain on Chair Jerome Powell's speech at the New York Treasury Market Conference on Thursday.

Among major premarket movers, Apple dipped nearly 1%. Sales of foreign-branded smartphones, including iPhones, in China fell in August on an annual basis, data from a government-affiliated research firm showed.

KB Home fell 6% after the homebuilder missed Wall Street expectations for third-quarter profit.

U.S.-listed shares of Chinese companies slipped after surging on Tuesday. Some analysts flagged that the massive stimulus package the country announced on Tuesday might not immediately spur up weak domestic demand.

Alibaba lost 2.7%, Li Auto dropped 3.4% and JD.com slid 3.9%.