April 2 (Bloomberg) -- U.S. stocks fell for the first time in three days after Federal Reserve Chairman Ben S. Bernanke acknowledged that the nation may be in a recession and higher fuel prices snuffed out a rally in retailers.

Microsoft Corp. and General Electric Co. led technology and industrial shares lower as a reduced growth forecast from the International Monetary Fund also added to concern that the world's biggest economy is shrinking. Declines in Home Depot Inc. and Sears Holdings Corp. helped chain stores in the Standard & Poor's 500 Index erase most of a 2 percent rally after oil climbed more than $3 a barrel and gasoline rose to a record.

The S&P 500 decreased 2.65 points, or 0.2 percent, to 1,367.53. The Dow Jones Industrial Average lost 45.44, or 0.4 percent, to 12,609.92 after gaining 391 points yesterday. The Nasdaq Composite Index slipped 1.35, or 0.1 percent, to 2,361.4.

The Fed and IMF forecasts ``give the market reason to pause,'' James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2 billion in Boston, said in an interview on Bloomberg Radio. ``All you hear about on the Street is `What's going to go wrong next?'''

The S&P 500, which yesterday posted its best start to a second quarter in 70 years, swung between gains and losses at least 16 times today as retreats in technology and industrial shares outweighed advances in energy and raw-materials companies.

Retailers helped lead the market higher in the morning after Best Buy Co. posted earnings that topped analyst estimates and an industry report showed an unexpected increase in jobs last month.

Bernanke's Forecast

GE, the world's biggest maker of power-plant turbines, jet engines and locomotives, dropped 41 cents to $38.02. Microsoft, the largest software maker, declined 34 cents to $29.16.

Bernanke said the economy may shrink in the first half of the year because homebuilding, employment and consumer spending will deteriorate.

``It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,'' Bernanke told Congress's Joint Economic Committee. He also told Congress he doesn't anticipate the central bank will need to back the rescue of more financial firms after providing a loan to JPMorgan Chase & Co. to speed the purchase of Bear Stearns Cos. last month.

Shares also declined after the IMF cut its forecast for U.S. growth this year to 0.5 percent from a January prediction of 1.5 percent, according to a document obtained by Bloomberg News. The IMF also said there's a 25 percent chance of a world recession, citing the worst U.S. financial crisis since the Great Depression.

`Overblown' Concerns

The IMF's assessment is ``overblown,'' U.S. Treasury Secretary Henry Paulson said in a Bloomberg Television interview from Beijing today. Paulson indicated the Bush administration is willing to consider congressional plans to stem foreclosures by expanding government guarantees for mortgages.

``You will continue to see flexibility as we learn and go forward,'' Paulson said after meetings with Chinese officials.

Home Depot, the biggest home-improvement retailer, retreated 33 cents to $29.16, extending its decline over the past year to 21 percent. Sears Holdings, the chain store being reorganized by hedge-fund investor Edward Lampert, dropped $1.86 to $107.61.

Crude oil for May delivery rose 3.8 percent to $104.83 a barrel in New York, and gasoline jumped 5.1 percent to $2.7736 a gallon. Gas stockpiles declined 4.53 million barrels to 224.7 million barrels last week, the biggest drop since August, an Energy Department report showed. The dollar fell against the euro for the first time in three days, bolstering the appeal of commodities as an inflation hedge.

`Still Struggling'

Chain stores started the day with gains after Best Buy said fourth-quarter profit was buoyed by higher sales of more- expensive laptops and video-game consoles. The company forecast sales and earnings this year that may rise more than some analysts projected. Best Buy shares added 47 cents to $43.94, paring an early rise of as much as $2.19.

``Any time you see a retailer that has something good to say, you certainly have to stand up and notice,'' said Paul Kandel, a New York-based portfolio manager at Sentinel Asset Management, which oversees about $5 billion. ``But I think it's a little early to draw a trend. The consumer is still struggling. They're facing high prices at the pump and the equity in their home has been evaporating.''

Banks declined, dragging down the S&P 500 Financials Index by 0.7 percent, as traders reduced bets that the Fed will lower borrowing costs by as much as half a percentage point at its April 30 policy meeting.

Fed Funds Futures

The probability of a 50 basis-point reduction in the Fed's target for overnight loans between banks dropped to 12 percent from 24 percent yesterday, according to futures contracts on the Chicago Board of Trade. The remaining bets are for a quarter of a percentage point reduction in the rate to 2 percent.

Bank of America Corp., the second-biggest U.S. lender by assets, lost 56 cents to $40.30. Wells Fargo & Co., the country's fifth-largest bank, dropped 96 cents to $30.53.

Bank of New York Mellon Corp. dropped $2.13 to $42. Attorneys representing Russia said there is ``consensus building among analysts and legal experts'' that Russia's lawsuit against the largest custodian of financial assets will stand up in courts outside the country. Bank of New York Mellon was accused by Russia's customs service in May of helping transfer $7 billion out of the country in the 1990s.

The jump in fuel prices, along with gains in copper and gold, pushed energy and raw-materials producers to the top gains among 10 industry groups in the S&P 500.

Exxon Mobil Corp., the biggest U.S. oil company, gained $1.50 to $88.52. Chevron, the second-largest, increased 77 cents to $87.51. Newmont Mining Corp., the world's second-biggest gold producer by volume, added $1.48 to $46.28. Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, advanced $2.10 to $99.73.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.

Last Updated: April 2, 2008 17:23 EDT