By Lisa Pauline Mattackal and Pranav Kashyap

(Reuters) -U.S. stock index futures dipped on Monday as investors recalibrated their expectations for Federal Reserve rate cuts this year, while also exercising caution amid heightened geopolitical tensions and ahead of key inflation data, policymaker comments, and third-quarter earnings.

Investors are pricing in an over 85% chance of a 25 basis point rate cut at the Fed meeting in November, according to the CME's FedWatch tool. Just a week ago, markets were hopeful of a second, outsized 50 basis point reduction.

However, a bumper September non-farm payrolls report last Friday showed the economy unexpectedly added the most number of jobs in six months, pointing to a still-robust jobs market.

The Cboe Volatility index, Wall Street's fear gauge, rose to 21.17, at its highest level in four weeks.

Meanwhile, U.S. Treasury yields rallied, with the yield on benchmark 10-year notes crossing 4% for the first time in two months.

"USD and Treasury yields are consolidating near multi-week highs triggered by Friday's outstanding U.S. September jobs report," said analysts at Brown Brothers Harriman.

Markets will continue to "wax and wane" with a focus on U.S. economic outperformance, military tension in the Middle East, and risk-on dynamics, the analysts added.

The rise in yields pressured rate-sensitive megacap growth stocks, pulling down Nvidia 0.8%, Alphabet 0.5% and Microsoft 0.3% in premarket trading.

Apple fell 1.2% after Jefferies assumed coverage of the stock with a "hold" rating.

Among other movers, shares of Pfizer rose 3.3% after a report that activist investor Starboard Value has taken a roughly $1 billion stake in the drug giant.

At 07:00 a.m. ET, U.S. S&P 500 E-minis were down 30.75 points, or 0.53%, Nasdaq 100 E-minis were down 136.5 points, or 0.67%, and Dow E-minis were down 193 points, or 0.46%.

Futures for the small-cap Russell 2000 index were also down 0.68%.

While markets continue to fine tune its expectations for interest rate cuts, most market watchers remain optimistic about the underlying strength of the economy and outlook for equities.

Goldman Sachs raised its 2024 year-end S&P 500 target to 6,000 from 5,600, and also lowered its odds of a U.S. economic recession to 15% from 20%.

Escalating geopolitical tension in the Middle East was on the investors' radar. Hezbollah rockets hit Israel's third-largest city of Haifa early on Monday, in the first direct attack on the northern city.

The benchmark S&P index closed Friday just above 5,751, while the Dow Jones Industrial Index notched a record closing high after the jobs report.

The consumer price index data, this week's most closely watched data event, is due on Thursday.

Several Fed officials are also slated to speak this week, with comments expected from Michelle Bowman, Neel Kashkari, Raphael Bostic and Alberto Musalem later on Monday.

Third-quarter earnings for S&P 500 companies also begin this week, with major banks including JP Morgan Chase, Wells Fargo and BlackRock scheduled on Oct. 11.

Earnings will be a significant test for Wall Street's rally this year - the S&P 500 is up about 20% year-to-date and stands near record highs.

(Reporting by Lisa Mattackal and Pranav Kashyap in Bengaluru; Editing by Shinjini Ganguli)