U.S. stocks fell on Tuesday, with the Dow and S&P 500 moving off 14-month highs, as a climb in producer prices raised inflation concerns.

Investors were mindful of making big bets ahead of the Federal Reserve's latest assessment of the U.S. economy. Of note will be the Fed's view of the 1.8 percent surge in the November Producer Price Index. The Fed's policy-making statement is due on Wednesday afternoon.

Although the market does not anticipate any changes in the Fed's current policy of holding U.S. interest rates near zero, even a slight change in the Fed's tone can cause an impact on investor sentiment as cheap money has been one of the main agents of the stock market's rally.

Investors are more worried about (inflation) today than they were yesterday, and that is based on the PPI data, which was a surprise, said Lawrence Creatura, portfolio manager at Federated Investors in Rochester, New York.

There has been a tug of war between investors who believe inflation or deflation will be the next threat we face and today's data indicates that maybe it's going to be inflation.

The Dow Jones industrial average <.DJI> dropped 38.54 points, or 0.37 percent, to 10,462.51. The Standard & Poor's 500 Index <.SPX> fell 4.39 points, or 0.39 percent, to 1,109.72. The Nasdaq Composite Index <.IXIC> shed 2.68 points, or 0.12 percent, to 2,209.42.

The Fed's two-day policy-setting meeting started at 2 p.m.(1800 GMT) and will conclude with a statement on the economy expected on Wednesday around 2:15 p.m. (1815 GMT).

Investors will also focus on the Consumer Price Index for November, also due Wednesday, for a more detailed picture of inflationary pressures. Overall CPI is forecast to have risen 0.4 percent in November, compared with a 0.3 percent increase in October, according to economists polled by Reuters.

Crude oil gained 1.7 percent above $70 a barrel, boosting shares of energy and materials companies. Chevron rose 0.7 percent to $77.81 and the PHLX Oil

Service Sector index <.OSX> rose 1.8 percent.

The U.S. dollar strengthened against the euro, and the dollar index <.DXY> rose 0.8 percent, touching its highest level in 2-1/2 months.

In recent weeks, the connections among equities and the dollar, oil and gold have loosened, with those assets trading more independently of one another.

For an illustration of those assets in 2009, see http://graphics.thomsonreuters.com/129/US_DGSPB1209.gif

General Electric Co shares fell slightly after the conglomerate forecast a 5 to 10 percent decline in 2010 revenue. GE edged down 0.5 percent to $15.87.

Best Buy Co shares fell 8.3 percent to $41.62 after the top U.S. electronics chain forecast gross margins in the current holiday quarter would be lower than expected.

Wells Fargo & Co shares added 0.6 percent to $25.66 after it sold $10.65 billion in stock, raising funds to help repay a U.S. government bailout.

Serving to curb losses on the Nasdaq, News Corp was up 2.1 percent at $15.44 after a ratings upgrade by Deutsche Bank, while Adobe Systems Inc gained 2 percent to $36.48 ahead of its earnings scheduled for after Tuesday's close.

The market, up more than 60 percent from the 12-year lows in March, has slowed its advance in recent weeks with thin volume, as traders look to lock in year-end profits and seek clues about stocks' direction for 2010.

(Editing by Kenneth Barry)