Wall St. falls after Fischer, Yellen comments

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks were lower in a choppy session on Friday, with stocks bouncing between gains and losses as investors grappled with the possible timing of a U.S. interest rate hike after comments from Federal Reserve officials, including Chair Janet Yellen.

The S&P 500 rose as much as 0.7 percent in the wake of a speech by Yellen in Jackson Hole, Wyoming that said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates.

Yellen told the gathering of central bankers from around the world the U.S. economy was nearing the central bank's goals of maximum employment and price stability but she maintained that future hikes should be "gradual".

Stocks later reversed course to trade lower after hawkish comments from Fed Vice Chair Stanley Fischer raised the possibility of a rate hike as soon as next month.

The perceived chances of a rate hike in September climbed to 30 percent from 21 percent the previous day, according to CME Group's FedWatch tool. Traders are now pricing in a 60.2 percent likelihood of a hike in December, up from 51.8 percent Thursday.

Banking shares, which stand to gain in a higher rate environment, advanced. The KBW Nasdaq bank index rose 0.2 percent. In contrast, sectors likely to be hurt by higher rates, such as utilities and telecoms, fell.

The S&P utilities index dropped 2.1 percent, on track for its worst day in four months. Telecoms fell 1.3 percent.

"The market ... needed to digest both Yellen and Fischer's comments and it is reacting in a way that is very consistent with an interest rate move," said David Schiegoleit, managing director at U.S. Bank Private Client Reserve in Los Angeles.

"Taken in balance the market has found a new direction today; it's just with those comments coming so close together we got bounced around a little bit here."

The Dow Jones industrial average fell 79.58 points, or 0.43 percent, to 18,368.83, the S&P 500 lost 7.4 points, or 0.34 percent, to 2,165.07 and the Nasdaq Composite dropped 10.47 points, or 0.2 percent, to 5,201.73.

Mirroring the market's swings, the CBOE Volatility index, known as Wall Street's "fear gauge", touched a seven-week high of 14.67. It was last up 7.3 percent at 14.63.

In company news, Herbalife lost 3.5 percent to $59.76 after a report said Carl Icahn, the nutritional supplement maker's top shareholder, was looking to sell his stake.

Declining issues outnumbered advancing ones on the NYSE by a 1.85-to-1 ratio; on Nasdaq, a 1.49-to-1 ratio favored decliners.

The S&P 500 posted 29 new 52-week highs and one new low; the Nasdaq Composite recorded 108 new highs and 23 new lows.

(Reporting by Chuck Mikolajczak; Editing by James Dalgleish)