U.S. stocks fell for the second consecutive day after a Federal Reserve official said the central bank may need to resume raising interest rates.

Companies that depend on so-called discretionary spending, including retailers, had the biggest drop in the Standard & Poor's 500 Index on the prospect the Fed may curtail growth.

``Investors here are looking at almost a tipping point in the economy,'' said David Dietze, president of Point View Financial Services in Summit, New Jersey, which manages $110 million. ``The risk of course is if this economy turns down too much we're going to be worried about corporate profits.''

Stocks initially rose after Iran, the world's fourth- largest oil producer, agreed to begin talks about its nuclear program, easing concern crude supplies may be disrupted. The market retreated after Fed Bank of Chicago President Michael Moskow said inflation may still be too high.

The S&P 500 lost 0.56 to 1296.96 at 1:31 p.m. in New York. The Dow Jones Industrial Average slipped 21.54, or 0.2 percent, to 11,323.52. The Nasdaq Composite Index retreated 1.49, or 0.1 percent, to 2146.26.

In prepared remarks to the McLean County Chamber of Commerce in central Illinois, Moskow raised the prospect of higher rates.

More `Firming' Needed

``Some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time,'' he said.

Moskow isn't a voting member of the rate-setting Federal Open Market Committee this year and has always joined the majority decision when he had a vote.

In a separate speech today, Jack Guynn, president of the Fed Bank of Atlanta, said he's confident policy makers will keep inflation low. He called the consequences of high inflation ``economically poisonous.''

Stocks were buoyed early in the day after Iran's Supreme Security Council said it's ready to hold ``serious negotiations'' on its nuclear program starting tomorrow.

Speculation Iran would defy a United Nations resolution to halt enriching uranium, a process used to make nuclear weapons, caused stocks to drop for the first time in more than a week yesterday and pushed oil above $72 a barrel in New York. Today, crude for October delivery slipped 0.4 percent.

Circuit City, Starbucks

Circuit City Stores Inc. paced a decline by retailers and other companies dependent on discretionary spending by consumers.

The second-largest U.S. electronics chain lost 88 cents to $24.12. Starbucks Corp., the world's biggest coffee-shop chain, declined 46 cents to $30.22. Consumer discretionary stocks in the S&P 500 fell 0.2 percent, the biggest decline among 10 industry groups.

Sprint Nextel Corp., the third-biggest U.S. wireless services provider, fell 7 cents to $16.14. Chief Operating Officer Len Lauer is leaving, three weeks after the company's third-quarter profit and customer additions trailed forecasts. Sprint has missed analysts' estimates for new customers four times since acquiring Nextel for $36 billion a year ago.

Microsoft Corp. fell 31 cents, or $1.19, to $25.79 for the second-biggest decline in the Dow average. The world's largest software developer may offer discounts on its Windows Vista operating system after delaying its release until next year.

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By Nick Baker

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net .

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