May 31 (Bloomberg) -- U.S. stocks fell after an index of Chicago-area business dropped in May to the lowest level in almost two years, suggesting the pace of economic growth is slowing more than expected.

``The economy is not going gangbusters, so we are not expecting large equity returns to materialize,'' said Lee Schultheis, who manages $110 million as chief investment strategist at Alternative Investment Partners LLC in White Plains, New York.

Even with today's retreat the three indexes are headed for their biggest monthly gain this year.

Nucor Corp. led declines among producers of raw materials, whose earnings are most sensitive to changes in the pace of economic growth. Alcoa Inc., the world's biggest aluminum maker, fell after the company said it received a subpoena from the Justice Department.

The Standard & Poor's 500 Index lost 4.88, or 0.4 percent, to 1193.90 as of 12:26 p.m. in New York. The Dow Jones Industrial Average decreased 41.60, or 0.4 percent, to 10,500.95. The Nasdaq Composite Index slipped 7.90, or 0.4 percent, to 2067.83. 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 560 million shares changed hands on the Big Board, 4.4 percent less than the same time a week ago.

The S&P 500 has gained 3.2 percent in May, while the Dow has added 3 percent. The Nasdaq has jumped 7.6 percent and is headed toward its biggest gain since October 2003.

Economic Reports

Today, 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. It was expected to fall to 96.1, according to economists in a Bloomberg survey.

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

Some investment strategists believe the S&P 500 will rise through the year. Ed Keon, chief investment strategist for Prudential Equity Group, increased his year-end forecast for the S&P 500 to 1300 from 1250. In his mid-year review and outlook, Keon said he was raising his forecast based on a ``firmer dollar, lower inflation worries, much stronger earnings than I expected and improved equity valuation.''

Nucor

Nucor, the second-biggest U.S. steelmaker, fell 99 cents to $52.79. Freeport-McMoRan Copper & Gold Inc., owner of the world's largest gold mine, fell 52 cents to $35.02 as copper and gold prices priced declined. Newmont Mining Corp., the world's largest gold producer, lost 57 cents to $37.02.

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

Alcoa lost 41 cents, or 1.5 percent, to $27.06 for the worst performance in the Dow average. 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.

A gauge of raw-materials stocks fell 0.8 percent and was the second-biggest contributor among 10 industry groups in the S&P 500. The shares have been the worst-performing group this quarter, dropping 8.1 percent.

DreamWorks

DreamWorks Animation SKG Inc., the film studio run by Jeffrey Katzenberg, lost $2.42 to $29.93. Harold Vogel, an analyst at Vogel Capital Management, said the company's overestimation o DVD sales for ``Shrek 2'' has damaged investor confidence, according to the Wall Street Journal. The stock has slumped 1 percent since DreamWorks reported profit that missed analysts' estimates because of lower-than-expected DVD sales.

American International Group Inc., the largest insurer, decreased 78 cents to $55.62 after the company lowered five years of profit by $3.9 billion to correct improper accounting and increase reserves for asbestos and environmental claims.

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.

Walt Disney, the second-largest U.S. media company, fell 40 cents to $27.48. Its ESPN sports cable-television network won't exercise an option to televise National Hockey League games for the 2005-06 season, ESPN spokeswoman Diane Lamb said. The two sides can still negotiate until tomorrow.

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 $5.51 to $271.51. 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 today.

Novellus Systems Inc. rose 93 cents to $26.85. 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.

Calpine Corp., which said last week it will sell as many as eight power stations, added 27 cents, or 10 percent, to $2.97 for the best performance in the S&P 500. The company said it will sell its Saltend Energy Centre for $906 million and use the money to redeem preferred shares.

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

Last Updated: May 31, 2005 12:38 EDT