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* Futures down: Dow 0.60%, S&P 0.57%, Nasdaq 0.68%
By Medha Singh
Oct 2 (Reuters) - Wall Street's main indexes were set to open lower on Wednesday, after hitting a one-month low in the previous session, as a shock contraction in manufacturing activity confirmed the domestic economy was feeling the burn from a prolonged U.S.-China trade war.
The U.S. factory activity index in September hit its lowest level in more than a decade, ISM data showed on Tuesday, joining other major economies that have posted a similar slowdown.
On the first day of the fourth quarter, the S&P 500 and Dow indexes recorded their sharpest slide in more than a month, wiping off their third-quarter gains.
That spooked investors, whose confidence in the domestic economy has been one of the factors fueling the benchmark S&P 500's rally this year.
The index is now about 3% below its all-time high hit in July, after coming within striking distance of it two weeks ago.
"What is hard to argue with is that the global manufacturing sector is now very much in a recession," Deutsche Bank strategist Jim Reid wrote in a note.
"This now makes an already important Fed meeting later this month even more of a crucial risk event."
The Federal Reserve, which cut interest rates for the second time this year in September, indicated that it would rely on economic data to determine future rate cuts.
Bets that the central bank would reduce borrowing costs in October have risen to 64.7% after the ISM data, from 39.6% on Monday, according to CME Group's FedWatch tool. The Fed's next policy meeting will be held at the end of the month.
Other crucial factors influencing investor sentiment this month include high-level trade negotiations between the United States and China next week and third-quarter corporate earnings reports.
The ADP National Employment Report, due at 8:15 a.m. ET (1215 GMT) is expected to show U.S. private payrolls grew by 140,000 jobs in September, fewer than the 195,000 added in August.
The report is seen as a precursor to the Labor Department's more comprehensive jobs report, due on Friday.
At 7:18 a.m. ET, Dow e-minis were down 159 points, or 0.6%. S&P 500 e-minis were down 16.75 points, or 0.57% and Nasdaq 100 e-minis were down 52.25 points, or 0.68%.
Activision Blizzard Inc dropped 2.6% in premarket trading after Bernstein downgraded the videogame maker's shares to "market perform".
Monster Beverage Corp fell 2.4% after the energy drink maker's stock was downgraded by Guggenheim to "neutral."
Stitch Fix Inc dropped 8.1% after the company forecast current-quarter revenue below analysts' estimates.
Shares in homebuilder Lennar Corp gained 2.3% after the company reported better-than-expected profit as cheaper mortgage rates led to higher demand for its homes. (Reporting by Medha Singh in Bengaluru; Editing by Arun Koyyur)