Wall Street falls on profit taking ahead of expected Fed rate hike

By Sinead Carew

(Reuters) - U.S. stocks were down late on Wednesday after reversing course earlier in the day as oil resumed its decline and investors took profits ahead of a Federal Reserve meeting next week that is expected to result in an interest rate hike.

While several investors struggled to explain a sharp reversal by the three major U.S. indexes, they cited concerns about slowing global economic growth against a backdrop of weak oil and the first U.S. rate hike in almost a decade.

"We've got a heck of a commodity bear market here and the Fed's about to raise interest rates. People are growing concerned they're going to raise rates at the worst possible time," said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.

"Oil went up which brought the entire market up. Then the computers came in to sell entire baskets to take profits," Phipps said.

At 3:13 p.m. (2015 GMT), the Dow Jones industrial average was down 107.8 points, or 0.61 percent, to 17,460.2, the S&P 500 had lost 19.95 points, or 0.97 percent, to 2,043.64 and the Nasdaq Composite had dropped 86.56 points, or 1.7 percent, to 5,011.68.

The S&P materials sector <.SPLRCM> was the brightest spot with a 3 percent increase driven by reports that Dow Chemical , whose shares were up 11.7 percent, and DuPont , up 11.1 percent were in talks to merge.

Crude oil prices resumed their slide, after rising as much as 4 percent earlier in the day as the market ignored a drawdown in U.S. crude stockpiles to focus on a build in distillates, including diesel, that was twice as big as expected. [O/R]

The energy index <.SPNY> trimmed earlier gains but was up 1.2 percent in late afternoon trading. The index has lost more than 9 percent since the beginning of the month.

Investors are concerned about China's slowing economy and its impact on global demand as well as signs of weakness in U.S. manufacturing.

"I think the market is starting to be a little bit more concerned about global economic weakness," said Paul Nolte, senior vice president and portfolio manager at Kingsview Asset Management in Chicago.

Seven of the 10 major S&P 500 sectors were lower, with the technology index's <.SPLRCT> 1.6 percent fall leading the decliners.

Yahoo was down 1.9 percent at $34.20 after the company's board decided not to sell its Alibaba stake. Alibaba was down 0.9 percent at $83.60

Costco Wholesale was down 5.2 percent at $160.07 after it reported a fall in same-store sales for the third straight quarter. The stock was the second-biggest drag on the S&P and the Nasdaq.

Declining issues outnumbered advancing ones on the NYSE by 1,899 to 1,148, for a 1.65-to-1 ratio on the downside; on the Nasdaq, 1,895 issues fell and 883 advanced for a 2.15-to-1 ratio favoring decliners.

The S&P 500 posted eight new 52-week highs and 16 new lows; the Nasdaq recorded 27 new highs and 119 new lows.

(Additional reporting by Marcus E. Howard, Tanya Agrawal and Aastha Agnihotri; Editing by Anil D'Silva and James Dalgleish)