May 31 (Bloomberg) -- U.S. stocks fell, trimming this year's biggest monthly gain for the benchmark indexes, after a measure of Chicago-area business dropped to the lowest level in almost two years.

American International Group Inc. led the decline after the largest insurer company lowered five years of profit. Raw- materials producers such as Alcoa Inc. and Nucor Corp. dropped as the report from Chicago, a center for manufacturing, suggested that demand for commodities such as aluminum and steel may wane.

``I don't think the economy is growing at a rate where you are going to see earnings estimates for the broad market as a whole continue to rise at a double-digit rate,'' said Brian Barish, president of Denver-based Cambiar Investments LLC, which oversees $4 billion. ``Progress is incrementally tougher, and therefore, stocks are discounting that.''

The Standard & Poor's 500 Index lost 5.89, or 0.5 percent, to 1192.89 as of 3:50 p.m. in New York. The Dow Jones Industrial Average decreased 61.69, or 0.6 percent, to 10,480.86. The Nasdaq Composite Index slipped 5.48, or 0.3 percent, to 2070.25. Financial markets in the U.S. were closed yesterday for the Memorial Day holiday.

Six stocks decreased for every five that rose on the New York Stock Exchange. Some 664 million shares changed hands on the Big Board, 3.1 percent less than the same time a week ago.

Benchmark indexes are headed for their biggest monthly advance this year amid economic reports that suggest the U.S. economy may continue to grow at a pace that won't spark inflation. The S&P 500 has climbed 3.1 percent in May, while the Dow has added 2.9 percent. The Nasdaq has jumped 7.6 percent and is headed toward its largest gain since October 2003.

More Bullish

Some investment strategists have become more bullish as concerns have eased that a pickup in inflation may prompt the Federal Reserve to increase borrowing costs and corporate earnings in the first quarter have been better than expected.

The ``underlying strength of the corporate sector and overall economic strength might be better than many investors think,'' Ed Keon, chief investment strategist for Prudential Equity Group, wrote in a note to clients.

Keon raised his 12-month target for the S&P 500 to 1300, up 8.4 percent from the close on May 27. His previous target for the benchmark was 1250.

Economic Reports

The National Association of Purchasing Management-Chicago said its Business Barometer fell to 54.1 from 65.6 in April. Economists in a Bloomberg News survey expected 61.4. Readings above 50 indicate growth.

The report overshadowed an unexpected increase in the Conference Board's index of consumer sentiment. The gauge rose to 102.2 this month from 97.5 in April. Economists had forecast a reading of 96.1, according to a Bloomberg survey.

The data from the Chicago area comes a day before the Institute for Supply Management's index for manufacturing companies nationwide. Economists expect the gauge to show a deceleration to 52.2 in May from 53.3 the month before, according to economists in a Bloomberg survey.

AIG decreased 67 cents to $55.73 after the company lowered five years of profit by $3.9 billion to correct improper accounting and increase reserves for asbestos and environmental claims.

Alcoa lost 24 cents to $27.23. The company said after the close of U.S. markets on May 27 that it received a subpoena from the Justice Department related to a grand jury probe of the aluminum-fluoride industry. Alcoa said it also faces investigations in Canada and Australia.

Nucor, the second-biggest U.S. steelmaker, fell 73 cents to $53.05. Freeport-McMoRan Copper & Gold Inc., owner of the world's largest gold mine, declined 24 cents to $35.30 as copper and gold prices priced declined. Newmont Mining Corp., the world's largest gold producer, slipped 33 cents to $37.26.

Copper, Gold

Copper and gold prices dropped after France's rejection of the European Union constitution drove the euro lower against the dollar, heightening concern that demand from overseas investors may slow.

A gauge of raw-materials stocks lost 0.4 percent for the second-biggest decline among 10 industry groups in the S&P 500. The shares have been the worst-performing group this quarter, declining 8.1 percent.

DreamWorks Animation SKG Inc. lost $2.47 to $29.88 after the company's latest film, ``Madagascar,'' missed opening weekend box-office sales estimates from at least two analysts.

Tibco Falls

Tibco Software Inc., whose programs link computer systems, decreased 17 cents to $6.16. The company said profit for the quarter ended May 27, excluding some costs, was 4 cents a share. Analysts expected 6 cents in a Thomson Financial survey.

Second-quarter profits are estimated by analysts to increase at the slowest pace in three years as high energy prices prompt consumers and businesses to rein in spending. Earnings at the S&P 500 companies will likely rise 6 percent from a year earlier, the smallest gain since the second quarter of 2002, according to a Bloomberg analysis of data from Thomson. Analysts had estimated a gain of 8 percent.

Google Inc., the most-used Internet search engine, climbed $7.80 to $273.80. The stock may reach $300 in the next 12 months as the company expands beyond selling advertising tied to Internet searches, wrote Piper Jaffray & Co. analyst Safa Rashtchy in a report.

Google shares have more than tripled since the company first sold shares to the public in August. The surge has made Google one of the 40 largest U.S. companies by market value, worth about $75.9 billion.

Novellus

Novellus Systems Inc. rose $1.07 to $26.99. The maker of machines used in semiconductor manufacturing boosted its second- quarter profit forecast to 20 cents to 22 cents a share from as much as 20 cents amid rising demand for chips used in consumer electronics.

Gains this month among computer-related stocks helped send the Nasdaq to four straight weekly advances, its longest streak since November. Stuart Schweitzer, global markets strategist at JPMorgan Asset Management, expects technology stocks to extend their advances.

``This economy is poised to be able to grow for years to come, because companies have lots of cash flow,'' said Schweitzer, who helps manage $790 billion in New York. ``We are likely to see over the coming years significantly increased spending on capital expenditures inclusive of technology.''

Calpine Corp., whose shares last month plunged to a record low amid rumors that the company might be forced into bankruptcy, added 27 cents to $2.97. Its 10 percent gain was the biggest in the S&P 500. The company said it will sell its Saltend Energy Centre for agreed to buy a U.K. plant from Calpine Corp. for 490 million pounds ($893 million) to capitalize on rising power prices.

To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: May 31, 2005 15:51 EDT