June 19 (Bloomberg) -- U.S. stocks fell, erasing the 2006 gain for the Standard & Poor's 500 Index, on rising concern the Federal Reserve will keep increasing rates even as the economy slows.

Exxon Mobil Corp., the largest company by market value, and Alcoa Inc., the No. 1 aluminum producer, led the Dow Jones Industrial Average lower after the price of oil and metals declined on speculation that higher rates are hurting demand for these commodities.

Fed Bank of Atlanta President Jack Guynn said today recent measures of inflation are ``bothersome.'' An index of homebuilder confidence dropped to the lowest in more than 11 years, foreshadowing reports later this week that economists expect to show growth is decelerating.

``People are saying `Oh gosh, we've got inflation and a slowing economy, that spells stagflation,''' said Randy Bateman, who helps manage $12 billion as chief investment officer at Columbus, Ohio-based Huntington Capital Corp. ``I don't know what the catalyst would be to make the market look better.''

The S&P 500 retreated 8.05, or 0.6 percent, to 1243.49 at 3:35 p.m. in New York, bringing its decline on the year to 0.4 percent. The Dow Jones Industrial Average lost 43.63, or 0.4 percent, to 10,970.92. The Nasdaq Composite Index slipped 13.75, or 0.7 percent, to 2116.20.

The S&P 500 has dropped 6.3 percent from a five-year high reached on May 5. The index first erased its gain for the year seven days ago, before recovering during a rally in the second half of last week.

Economic reports this week may show that new home construction remained near the lowest in 17 months, growth in durable goods slowed and leading indicators of the economy dropped the most since September 2005.

Inflation

``You have the Fed governors out there talking up inflation problems,'' said Jay Suskind, co-head of capital markets at Ryan Beck & Co. in Florham Park, New Jersey. ``This market can't get out of its own way as far as interest-rate fears and inflation risks'' are concerned.

Guynn, speaking about the U.S. economic outlook to the Georgia Bankers Association at an event in Naples, Florida, virtually repeated remarks made June 7 in which he also said the risks of faster price increases are ``elevated'' and that economic data already reflect a slowdown from the first quarter.

The Federal Reserve's next decision on rates will be announced June 29. Economists surveyed by Bloomberg expect a 17th straight increase to 5.25 percent, the median estimate.

Interest-rate futures show traders are certain of a rate increase this month, while the odds of another quarter-point move in August rose to 75 percent, from no chance two weeks ago.

Yields

The yield on the benchmark 10-year note rose about one basis point to 5.14 percent in New York, according to bond broker Cantor Fitzgerald LP, the highest since May 17.

Oil prices fell on speculation that tensions between the U.S. and Iran may ease as the Islamic republic shows signs of curbing its nuclear program. Crude oil for July delivery slid 98 cents, or 1.4 percent, to $68.90 a barrel in New York. Prices for natural gas also decreased.

Exxon slid $1.21 to $57.59. A gauge of oil shares fell 2.1 percent, the biggest decliner among 10 groups in the S&P 500.

A measure of materials shares dropped 1.3 percent for the second biggest drop in the S&P 500. Prices for copper, gold, nickel and aluminum declined.

Alcoa fell 91 cents to $29.18. U.S. Steel Corp., the biggest U.S.-based steelmaker, declined 97 cents to $61.97. Freeport- McMoRan Copper & Gold Inc., which owns the world's biggest gold mine and second-largest for copper, fell $1.24 to $47.06. Phelps Dodge Corp., the world's third-largest copper producer, declined $2.04 to $78.06.

Almost 16 stocks fell for every three that rose on the New York Stock Exchange. More than 1.2 billion shares changed hands on the Big Board, about 1.9 percent less than at the same time a week ago.

Reports

A report today showed confidence among U.S. homebuilders dropped this month to the lowest in more than 11 years as sales fell due to higher mortgage rates. The National Association of Home Builders/Wells Fargo's index of builder confidence declined to 42, the lowest since April 1995, from 46 in May. A number below 50 means pessimists outnumber optimists. The index hasn't increased for the last eight months, the longest such period since 1994.

The Commerce Department may say tomorrow that builders broke ground on homes at a 1.870 million annual rate in May, according to a Bloomberg News survey of economists. April's rate was 1.849 million. Building permits probably declined to a 1.950 million annual rate, the lowest since November 2003, from 1.973 million.

Conference Board

A report from the Conference Board June 22 may show leading indicators, which forecasts the economy three to six months out, fell 0.5 percent last month, from an unexpected slip of 0.1 percent in April. A report on durable goods orders June 23 may show a 0.4 percent increase in May following a 4.8 percent drop in April.

General Motors Corp. advanced for the biggest gain in the Dow after Delphi Corp., a former unit of the world's largest automaker, expanded its buyouts of union workers.

GM added 77 cents to $26.37. Delphi, the biggest U.S. auto- parts supplier, said June 17 that about 8,000 members of the International Union of Electrical Workers-Communication Workers of America are eligible for buyouts. The agreement is part of a plan at GM and Delphi to cut jobs while avoiding strikes.

Vonage Slides

Vonage Holdings Corp. tumbled $1, or 10 percent, to $8.60. The pioneer of Internet phone service was sued by Verizon Communications Inc. for allegedly infringing seven of its patents for Internet telephone technology. Vonage, whose stock has slid 49 percent since its May debut, said it would fight the lawsuit. Verizon slipped 14 cents to $32.40.

Intel Corp., the world's largest maker of computer chips, advanced 27 cents to $18.57. The shares were raised to ``buy'' from ``neutral'' by UBS analyst Thomas A. Thornhill, who forecast higher profitability as semiconductor demand increases this year.

UBS's 12-month share price estimate for Intel was raised to $23 from $21, while its 2007 earnings estimate was lifted to $1.28 a share from $1.22.

Monster Worldwide Inc. rose $2.89, or 7 percent, to $44.06 for the biggest gain in the S&P 500. The shares were raised to ``overweight'' from ``equal-weight'' by analyst Lisa Monaco at Morgan Stanley. Monster will be able to withstand a potential U.S. slowdown as its non-U.S. operations increase in importance, Monaco wrote.

Shares of Nokia Oyj and Siemens AG gained after the companies agreed to combine their telecommunications network- equipment units. The merger would create a company with annual sales of about 15.8 billion euros ($19.9 billion) and will be equally owned by Nokia and Siemens. The new company will be called Nokia Siemens Networks, and will have 21 percent of the $65 billion wireless-equipment market, according to Credit Suisse Group.

Nokia American Depositary Receipts, one of which represents one share, gained 63 cents to $20.60. Siemens ADRs rose $6.27 to $86.07 in Germany.

To contact the reporter on this story: Hilary Johnson in New York at hjohnson10@bloomberg.net.

Last Updated: June 19, 2006 15:37 EDT