The Dow and S&P 500 fell on Tuesday, slipping from 14-month highs, as a jump in producer prices ignited fears of inflationary pressures.

Investors were wary of making big bets as they awaited the Federal Reserve's latest assessment of the U.S. economy. An item of particular interest will be the Fed's view of the 1.8 percent surge in the November Producer Price Index. The Fed's policy-making statement is due on Wednesday afternoon.

Although the market does not anticipate any changes in the Fed's policy of holding U.S. interest rates near zero, even a small change in tone can have an impact on investors' mood because cheap money has been one of the main drivers of the stock market's rally.

The PPI reading may certainly cause a bit of inflationary pressure, but there is nothing the Fed can do at this point. We will have to wait and see if this (rise in PPI) is a one-time thing or not ... If it continues, that could be another story, said Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore.

The Dow Jones industrial average <.DJI> was down 35.97 points, or 0.34 percent, at 10,465.08. The Standard & Poor's 500 Index <.SPX> was down 3.51 points, or 0.32 percent, at 1,110.60. The Nasdaq Composite Index <.IXIC> was down 0.73 point, or 0.03 percent, at 2,211.36.

The Fed will kick off a two-day policy-setting meeting later Tuesday, with a statement on the economy expected on Wednesday at around 2:15 p.m. (1815 GMT).

Investors are keen to see data on the Consumer Price Index for November, also due Wednesday, for a more detailed picture of inflationary pressures. Overall CPI is forecast to have risen 0.4 percent in November, compared with a 0.3 percent increase in October, according to economists polled by Reuters.

Best Buy Co shares fell 9.5 percent to $41.05 after the top U.S. electronics chain forecast gross margins in the current holiday quarter would be lower than expected.

Wells Fargo & Co shares climbed 1 percent to $25.75 after it sold $10.65 billion in stock, raising funds to help repay a U.S. government bailout.

Limiting the Nasdaq's loss to near the break-even point, News Corp was up 2.1 percent at $15.44 after a ratings upgrade by Deutsche Bank, while BlackBerry maker Research In Motion Ltd rose 1.4 percent to $64.06 ahead of its earnings later this week.

Crude oil gained 1.6 percent to pop above $70 a barrel, boosting shares of energy and materials companies. Chevron rose 0.7 percent to $77.80 and the S&P Energy index <.GSPE> was the percentage leader among S&P sectors.

The U.S. dollar strengthened against the euro, and the dollar index <.DXY> rose 0.9 percent to its highest level since early October.

The market, up around 60 percent from the lows in March, has slowed its advance in recent weeks with thin volume, as traders look to book year-end profits and seek clues about stocks' direction for 2010.

(Reporting by Angela Moon; editing by Jan Paschal)

Inflation