* Oil prices drop about 1 percent
* ADP report: 177,000 jobs added in August vs est. 175,000
* Palo Alto drops after disappointing forecast
* Indexes down: Dow 0.19 pct, S&P 0.19 pct, Nasdaq 0.19 pct (Updates to open)
By Mamidipudi Soumithri and Yashaswini Swamynathan
Aug 31 (Reuters) - Wall Street was slightly lower on Wednesday, the last trading day of August, as a stronger dollar weighed on oil prices and materials companies.
Oil prices dropped about 1 percent as the dollar traded at three-week highs. Exxon fell 0.6 percent and was the top drag on the S&P.
The 0.74 percent drop in the S&P 500 energy index weighed on the benchmark.
Materials, which includes companies with large overseas operations, was off 0.62 percent.
Investors, however, are focused on the upcoming U.S. nonfarm payrolls data on Friday which could provide clues on the timing of the next interest rate hike.
The markets have been playing a guessing game on when the Federal Reserve would be able to raise rates after top Fed officials, including Chair Janet Yellen, turned hawkish on the back of slow but steady economic growth.
Boston Fed president and voting member Eric Rosengren, in a panel discussion in China on Wednesday, said the Fed was nearing its employment and inflation rate goals, adding that rate hikes could shield the economy.
A smaller-than-expected drop in private payrolls numbers boosted investors optimism about Friday's jobs report which includes both private and public sector employment.
The U.S. private sector added 177,000 jobs in August, compared with expectations of 175,000.
At 9:41 a.m. ET, the Dow Jones industrial average was down 34.18 points, or 0.19 percent, at 18,420.12.
The S&P 500 was down 4.18 points, or 0.19 percent, at 2,171.94.
The Nasdaq Composite was down 10.12 points, or 0.19 percent, at 5,212.87.
"I think today will be very quiet. It's all about Friday morning, it's late August and most risk managers aren't going to allow traders to comes in with large positions," said John Brady, senior vice president at R.J. O'Brien & Associates in Chicago.
The markets are still skeptical of the Fed raising rates in September, given the U.S. presidential elections in November and inflation rate that rides below the Fed's 2 percent target.
Traders have priced in a 27 percent chance of a rate increase in September and a 54.4 percent chance in December, according to CME Group's FedWatch tool.
Financials, which gain the most in a higher rate environment, was the only sector that was trading higher.
Palo Alto dropped 7.5 percent to $132.87 after the cyber security firm forecast current-quarter profit and revenue below analysts' estimates.
Juno Therapeutics fell 6.5 percent to $29.65 after BTIG initiated coverage with a "sell" rating.
Declining issues outnumbered advancing ones on the NYSE by 1,670 to 951. On the Nasdaq, 1,385 issues fell and 858 advanced.
The S&P 500 index showed 10 new 52-week highs and one new low, while the Nasdaq recorded 48 new highs and six new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Don Sebastian)