Wall Street pares gains after Yellen cautions about economy

By Yashaswini Swamynathan

REUTERS - Wall Street gave up some gains on Tuesday after Federal Reserve Chair Janet Yellen said the central bank would be cautious in raising interest rates given risks such as Britain's membership in the European Union and a slowdown in the U.S. labor market.

"The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach ... remains appropriate," Yellen said.

The central bank left interest rates unchanged and cut the economy's growth forecast last week after surprisingly weak monthly hiring data put the economy's recovery in question.

Britain's vote on its EU membership on Thursday has left investors nervous over its repercussions on the U.S. markets.

Weak productivity, slowing economic activity and developments abroad led the committee to expect interest rates to remain low "for some time", Yellen said.

"The Fed's normalization plan in raising interest rates is being met head on with an economic slowdown and collapsing long-term interest rates," said James Abate, chief investment officer at Centre Asset Management in New York.

"The Fed is praying for the economy to buck the business cycle downturn that it is in."

Yellen is also scheduled to attend a meeting at 4:30 p.m. ET with other Fed officials.

At 10:37 a.m. ET, the Dow Jones Industrial Average was up 18.39 points, or 0.1 percent, at 17,823.26.

The S&P 500 was up 2.9 points, or 0.14 percent, at 2,086.15.

The Nasdaq Composite was up 3.79 points, or 0.08 percent, at 4,841.00.

Five of the 10 major S&P sectors were lower, led by a 0.37 percent fall in the materials index.

Energy stocks were weighed down by a more than 2.2 percent fall in oil prices. Exxon fell 0.4 percent and was the biggest drag on the S&P. [O/R]

Homebuilder Lennar rose 3.3 percent to $48.2 after reporting a better-than-expected quarterly profit.

Declining issues outnumbered advancing ones on the NYSE by 1,520 to 1,293. On the Nasdaq, 1,607 issues fell and 926 advanced.

The S&P 500 index showed nine new 52-week highs and three new lows, while the Nasdaq recorded 26 new highs and 31 new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Don Sebastian)