By Johann M Cherian and Purvi Agarwal

(Reuters) – U.S. stock index futures dipped on Thursday as markets awaited labor data for clues on the economic outlook and the likelihood of further interest-rate cuts from the Federal Reserve, while watching for a potential escalation in Middle East hostilities.

Wall Street’s three main indexes closed flat on Wednesday after a private survey signaled the labor market was not in sharp deterioration.

Caution prevailed nonetheless, as investors contemplated the scale of Israel and the United States’ response to Iran’s recent attack on Israel. The CBOE volatility index, Wall Street’s fear gauge, hovered at more than three-week highs at 19.73.

“Fears that Israel may retaliate against Iran soon did not allow investors to cheer data pointing to decent performance of the U.S. labor market (on Wednesday),” said Charalampos Pissouros, senior investment analyst at XM.

“Should (Friday’s) official jobs report confirm the notion of a decently performing market, equities could rebound, even if this means fewer Fed rate cuts down the road.”

Weekly jobless claims data due later in the day is expected to show that the number of Americans filing for unemployment benefits stood at 220,000 for the week ending Sept. 28, up from 218,000 the week before that. The pivotal nonfarm payrolls figures are due on Friday.

Also on tap is the Institute for Supply Management’s survey on service sector activity, which makes up the majority of the U.S. economy. For the month of September, the index is expected to stay in expansion territory at 51.7.

Dow E-minis were down 143 points, or 0.34%, U.S. S&P 500 E-minis were down 16 points, or 0.28%, and Nasdaq 100 E-minis were down 77 points, or 0.38%.

U.S. stocks have rallied for much of the year, with the benchmark S&P 500 confirming a bull rally and logging gains in eight of the previous nine months on expectations of lower borrowing costs.

Tech stocks have led the charge on the prospect of their earnings getting a boost from artificial intelligence integration.

Investors will also assess comments from Fed policymakers Raphael Bostic and Neel Kashkari later in the day. Richmond Fed President Thomas Barkin said on Wednesday that inflation cooling to the Fed’s 2% target could take longer than expected, limiting the magnitude of further rate cuts next year.

Odds that the U.S. central bank will trim rates by 25 basis points at its November meeting stand at 64.8%, up from 50.7% a week ago, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.

Meanwhile, a workers’ strike on the East and Gulf coasts entered its third day. Morgan Stanley economists said a prolonged stoppage could raise consumer prices, with food prices likely to react first.

Among premarket movers, oil stocks such as Occidental Petroleum (NYSE:OXY) and Exxon Mobil (NYSE:XOM) were little changed, although crude prices rose more than 1%.

Levi Strauss (NYSE:LEVI) tumbled 11.6% after the company said it was considering a sale of its underperforming Dockers brand and forecast fourth-quarter revenue below expectations.

Tesla (NASDAQ:TSLA) dropped 1.3% a day after reporting a smaller-than-expected rise in third-quarter deliveries.