Wall St drops, investors to seek clues in Fed's Beige Book to give Fed intentions

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks fell on Wednesday amid concern central banks' easy money policies to rescue the weak economy may not be enough for markets to extend this year's gains.

The Federal Reserve's Beige Book, due to be released at 2 p.m. (1800 GMT), may help answer questions whether the Fed is moving closer to scaling back its stimulus efforts.

The S&P 500 has fallen more than 3 percent since hitting an all-time closing high on May 21 as investors worry about a possible trimming of the U.S. Federal Reserve's unconventional bond-buying policy to boost growth.

Even with the S&P's recent decline, the benchmark index is up about 13 percent for the year, leading some market participants to believe the stock market has risen as far as it can for the time being. Mixed economic data and doubts about the ability of the world's major central banks to prop up markets support the doubts.

"The data is sort of - where do you go? If you get good data, then that is consistent with what the market has been doing," said Gordon Charlop, managing director at Rosenblatt Securities in New York.

"And if you get not so good data, at this point does that still mean the Fed stimulus is enough to offset that? At some level that is no longer a viable investment philosophy."

Investors will look to the Fed's beige book - a report on economic conditions for the Federal Open Market Committee - for clues on the health of the economy, which could give insight into the future of the Fed's bond-buying program.

After massive gains in Japan by the Nikkei average to start the year, powered by strong stimulus measures by Prime Minister Shinzo Abe, the index has also fallen as expectations for their effectiveness have decreased. <.T>

The S&P 500 materials index <.SPLRCM> down 1.6 percent and the S&P financial index <.SPSY> off 1.5 percent were the worst performing sectors.

Selling was broad. Declining stocks outnumbered advancing ones on the NYSE by 2,371 to 575, while on the Nasdaq, decliners beat advancers 1,833 to 574.

Still, investors will likely hold off on big bets until Friday, when the key nonfarm payrolls report is released.

The Dow Jones industrial average dropped 159.58 points, or 1.05 percent, to 15,017.96. The Standard & Poor's 500 Index dropped 17.74 points, or 1.09 percent, to 1,613.64. The Nasdaq Composite Index dropped 34.78 points, or 1.01 percent, to 3,410.48.

U.S. service sector activity picked up in May, an industry report showed, and the Commerce Department said factory orders grew in April, though less than analysts had expected.

A more important report came earlier in the day from the private sector, which showed companies had picked up the pace of hiring in May, though job growth remained sluggish.

Another report showed a gauge of U.S. labor-related costs fell in the first quarter by the most in four years.

The U.S. Treasury Department said it will begin a fresh round of sales of the General Motors Co stock it acquired during the government's bailout of the U.S. auto sector. GM shares were down 2.1 percent at $34.23.

Apple shares fell 0.5 percent to $447.05 after Samsung Electronics scored a victory in the rivals' long-running dispute over mobile device patents.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)