US STOCKS-Wall Street retreats ahead of Fed decision as FedEx weighs

(For a live blog on the U.S. stock market, click LIVE/ or

type LIVE/ in a news window.)

* Fed policy decision expected at 2:00 p.m. ET

* FedEx tumbles after profit warning; drags down UPS shares

* Adobe down after tepid revenue forecast

* Indexes down: Dow 0.21%, S&P 0.27%, Nasdaq 0.39%

(Updates to early afternoon)

By Medha Singh and Ambar Warrick

Sept 18 (Reuters) - U.S. stocks came under pressure on

Wednesday as investors waited for the Federal Reserve's decision

on interest rates and clues about its future monetary policy,

while a profit warning by FedEx weighed on sentiment.

The package delivery company's FDX.N shares tumbled 13.6%

and were on course for their sharpest one-day percentage drop

since the financial crisis after FedEx blamed U.S.-China trade

tensions and a split with Amazon.com Inc AMZN.O for its dismal

full-year profit forecast. Its stock was the biggest drag on the S&P 500 index .SPX

and drove a 1.7% drop in shares of rival United Parcel Service

Inc UPS.N .

The Dow Jones Transport Average .DJT lost 1.71%, while the

broader industrial sector .SPLRCI was off 0.65%. Ten of the 11

major S&P sectors were in the red.

Investors are now squarely focused on the U.S. central

bank's policy statement due at 2:00 p.m. ET (1800 GMT), followed

by Chair Jerome Powell's address a half hour later.

The Fed is expected to lower interest rates by a quarter

percentage point for the second time in three months, but a deep

divide among policymakers has led traders to abandon all bets on

a third reduction this year.

"I expect them to give a tone of 'we'll let the number tell

us what to do next' as they have in the past," said JJ Kinahan,

chief market strategist at TD Ameritrade in Chicago.

"Especially, with three of the Fed board members last time

not voting for the rate cut, you may see even more cautious

language going forward."

Earlier in the day, the central bank injected more cash into

the banking system as the key interest rate pierced above its

targeted range for the first time since the financial crisis.

That puts pressure on policymakers to come up with long-term

fixes for the funding squeeze. In response, trader bets for a 25 basis point reduction in

interest rates shot back up to 72.7% after falling to nearly 50%

on Tuesday, according to CME Group's FedWatch tool.

The interest-rate sensitive banking index .SXPBK edged

0.10% lower and was on pace for a third day of losses.

Expectations of lower rates have spurred a Wall Street rally

this year, with the benchmark S&P 500 .SPX now less than 1%

below its all-time high hit in July.

At 12:37 p.m. ET, the Dow Jones Industrial Average .DJI

was down 55.89 points, or 0.21%, at 27,054.91, the S&P 500

.SPX was down 8.08 points, or 0.27%, at 2,997.62. The Nasdaq

Composite .IXIC was down 31.90 points, or 0.39%, at 8,154.12.

Adobe Inc ADBE.O slipped 2.8% after the Photoshop software

maker forecast tepid revenue for the current quarter.

In a bright spot, Versace-owner Capri Holdings Ltd CPRI.N

rose 1.9% as Jefferies raised its price target on the stock.

Declining issues outnumbered advancers for a 1.51-to-1

ratio on the NYSE and a 1.84-to-1 ratio on the Nasdaq.

The S&P index recorded 15 new 52-week highs and one new low,

while the Nasdaq recorded 36 new highs and 27 new lows.