Wall Street drops for a third day on Fed concerns

By Ryan Vlastelica

NEW YORK (Reuters) - Major U.S. stock indexes fell for a third straight day on Wednesday, as concerns grew over the longevity of the Federal Reserve's stimulus policy, which has been widely credited with fueling the market's gains this year.

In the sessions preceding recent comments by Fed officials, equities had struggled for direction in thin trading, with major indexes hovering near all-time highs and few clear catalysts to drive shares decisively higher. On Wednesday, the S&P broke below 1,693.95, its 14-day moving average, which had been serving as a support level.

"We're still only a few points under our all-time high, so it isn't surprising to see people take profits in a somewhat frothy market," said Randy Frederick, managing director of active trading for Charles Schwab in Austin, Texas.

"At these levels, there's plenty of room to the downside before there's reason to be concerned."

Shares suffered their biggest daily decline since June 24 on Tuesday after comments from a pair of Fed officials muddied the water over how soon the central bank might reduce its bond-buying program.

Chicago Fed President Charles Evans said Tuesday the Fed would probably scale back its bond-buying program later this year, perhaps beginning to do so as early as next month depending on economic data.

That echoed earlier comments by Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, though he told Market News International the Fed might continue its stimulus program if growth doesn't meet its targets.

"The comments weren't especially out of the ordinary, but there's not much for the market to be trading off of otherwise," said Frederick.

Equity markets have been closely tethered to central bank policy, with many investors concerned that economic growth isn't robust enough to boost markets without the Fed's help. Last week, the July payroll report came in much weaker than expected.

Walt Disney Co fell 3 percent to $65.04 a day after projecting a massive loss related to its film, "The Lone Ranger," though adjusted earnings slightly beat expectations.

The Dow Jones industrial average was down 62.12 points, or 0.40 percent, at 15,456.62. The Standard & Poor's 500 Index was down 6.79 points, or 0.40 percent, at 1,690.58. The Nasdaq Composite Index was down 10.48 points, or 0.29 percent, at 3,655.29.

Time Warner Inc shares rose 2.6 percent to $66.65 after the company reported a bigger revenue than had been forecast. AOL Inc rose 2.7 percent to $37.21 after it reported results and said it would buy Adap.tv, a video ad platform, for $405 million.

On the downside, First Solar Inc fell 10 percent to $41.90 after it reported results Tuesday that were below expectations and cut its full-year outlook. Ralph Lauren Corp fell 6.2 percent to $177.77 as profits declined. Both companies were among the S&P 500's biggest percentage decliners.

Of the 418 companies in the S&P 500 that have reported earnings through Tuesday morning, Thomson Reuters data showed that 67.5 percent topped analysts' expectations, in line with the average beat over the past four quarters. On the revenue side, 54 percent have reported revenue above estimates, more than in the past four quarters but below the historical average.

(Editing by Bernadette Baum)