U.S. stocks fell in a broad late-day drop on Wednesday after a top Federal Reserve official said interest rates should not stay low for much longer, giving investors an excuse to take profits.

A speech by Kansas City Federal Reserve Bank President Thomas Hoenig drove afternoon selling after he said keeping interest rates too low for too long would encourage risky financial behavior.

Energy stocks led the declines, with the S&P energy index <.GSPE> falling 1 percent, and Dow component Exxon Mobil sliding 0.8 percent to $67.34. Crude oil futures fell 1.1 percent to $85.88 a barrel after data showed domestic inventories rose last week.

The Federal Reserve's near-zero interest-rate policy has underpinned a rally of almost 75 percent since the March 9, 2009, low, and the removal of easy money is one of the market's biggest fears. Hoenig, however, was the sole dissenter at the most recent Fed meeting, advocating higher rates.

It looks like what the market is latching onto is Thomas Hoenig -- the lone dissenter of the idea of not raising rates -- had some very strong comments, said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.

The real reason is it's a short-term extended market that's vulnerable to short-term pullbacks and this is what it's using as the excuse.

The Dow Jones industrial average <.DJI> fell 72.47 points, or 0.66 percent, to 10,897.52. The Standard & Poor's 500 Index <.SPX> slipped 6.99 points, or 0.59 percent, to 1,182.45. The Nasdaq Composite Index <.IXIC> lost 5.65 points, or 0.23 percent, to 2,431.16.

In contrast, Federal Reserve Chairman Ben Bernanke said the U.S. economy still faces significant headwinds, suggesting he was in no rush to raise interest rates.

The CBOE Volatility Index <.VIX>, Wall Street's fear gauge, gained 2.4 percent after closing on Tuesday at a two-and-a-half-year low. Despite the gain, the VIX remains at low levels, suggesting a complacency among investors.

The KBW index of bank stocks <.BKX> slipped 0.4 percent, with JP Morgan Chase & Co down 1.1 percent at $45.32.

Monsanto Co fell 2.1 percent to $68.09 after the agricultural seed company reported a quarterly profit below expectations and warned it will not meet its 2010 earnings goal.

Stocks gained some ground in the early afternoon after strong demand at a $21 billion Treasury auction of 10-year notes, but the momentum was short-lived.

Worries about Greece's debt load created a negative overhang early on after the government said the country's banks had asked for billions of euros in support and euro-zone states argued over the conditions of potential bailout loans.

(Reporting by Leah Schnurr; Editing by Jan paschal)