* Indexes down: Dow 1.02%, S&P 500 0.37%, Nasdaq 0.52%

* Seagate ( STX ) gains after forecasting revenue, profit above

estimates

* Ford rises after lifting FY profit outlook

* Fed expected to leave rates unchanged, verdict due at 2:00

pm ET

(Updates for market open)

By Johann M Cherian and Ragini Mathur

July 29 (Reuters) - Wall Street's main indexes dropped on

Wednesday as investors awaited the Federal Reserve's monetary

policy verdict against a backdrop of surging oil prices, while

chip stocks remained under pressure ahead of Big Tech earnings.

Global markets have been volatile this month as investors

questioned the sustainability of the AI spending boom after

signs that major U.S. companies were deepening a web of

AI-linked investments and continuing to funnel billions into the

technology at the expense of free cash flow.

The scrutiny comes as competition from China heats up, both

in the race to develop advanced chips and as Chinese firms roll

out cheaper AI models. On Wednesday, South Korean chipmaker SK

Hynix's ( SKHY ) bumper quarterly results fell short of lofty

investor expectations.

U.S.-listed shares of the company edged higher by

1.7%, while other chip stocks seesawed in volatile trading.

Industry leader Nvidia ( NVDA ) was down 1%, while a broader

gauge, the Philadelphia Semiconductor index, fell 1.6%.

"The pressure is shifting from spending plans to returns on

investment. Investors want evidence that AI capex is generating

revenues now, while also strengthening the future growth

outlook," said Gina Martin Adams, chief market strategist at HB

Wealth.

Offering some respite wasdata storage provider Seagate

Technology ( STX ), which climbed 5.4% after forecasting

quarterly results above estimates.

Results from Microsoft ( MSFT ) and Meta are due

after the bell, while Amazon.com ( AMZN ) and Apple ( AAPL ) are

expected later this week. Traders will closely watch for signs

that their billion-dollar AI investments were boosting earnings.

Shares of the companies edged lower in early trade, except for

Apple ( AAPL ), which was up about 1%.

At 9:53 a.m. the Dow Jones Industrial Average fell

539.49 points, or 1.02%, to 52,207.83, the S&P 500 lost

27.62 points, or 0.37%, to 7,401.16 and the Nasdaq Composite

lost 127.98 points, or 0.52%, to 24,747.36.

The industrials sector was the biggest loser on

the S&P 500, with construction and mining equipment maker

Caterpillar ( CAT ) falling 3.6%.

Financials and consumer discretionary were

down 0.5% and 0.3%, respectively, while the heavyweight

technology sector edged lower for a fifth consecutive

session.

Recently, tech concerns have prompted investors to focus on

other areas of the market such as consumer staples and

healthcare, which were up 0.2% each on Wednesday.

FED IN FOCUS

The Fed will announce its monetary policy verdict at 2:00

p.m. ET against the backdrop of crude prices soaring by

7% to $89.94 a barrel, as U.S. President Donald Trump said that

the U.S. would respond to Iran's attacks in Jordan.

Traders see a 35.8% chance of a rate hike, according to LSEG

data, following a report showing that price pressures eased in

the prior month, but they are confident that rates will rise by

at least 25 basis points by year-end.

Markets will scrutinize Chairman Kevin Warsh's comments

after he said the central bank would avoid giving explicit

guidance on future interest-rate moves.

Ford Motor ( F ) gained 6.3% after raising its annual profit

outlook for a second time this year. Procter & Gamble ( PG )

dropped 2.7% after forecasting slower revenue growth in fiscal

2027.

Declining issues outnumbered advancers by a 1.43-to-1 ratio

on the NYSE, and by a 1.39-to-1 ratio on the Nasdaq.

The S&P 500 posted 15 new 52-week highs and one new low,

while the Nasdaq Composite recorded 59 new highs and 81 new

lows.