U.S. stocks declined on Wednesday as investors braced for the U.S. Federal Reserve's policy statement, which may provide clues about how long it will keep in place policies that have boosted markets.

A drop in new home sales in December as well as guarded outlooks from Caterpillar Inc and United Technologies Corp also weighed, while the U.S. president's forthcoming State of the Union address unsettled a market that has become highly sensitive to political risk.

A lot of the market action today is going to be hesitant, not really wanting to commit one way or the other before the Fed announcement this afternoon, said Dan Cook, senior market analyst at IG Markets in Chicago.

Although investors are not expecting the Fed to increase interest rates, signs that it may begin to withdraw liquidity measures could hinder markets.

The Dow Jones industrial average <.DJI> fell 44.89 points, or 0.44 percent, to 10,149.40. The Standard & Poor's 500 Index <.SPX> shed 4.29 points, or 0.39 percent, to 1,087.88. The Nasdaq Composite Index <.IXIC> slipped 2.81 points, or 0.13 percent, to 2,200.92.

New home sales fell for the second straight month, according to the Commerce Department. That hurt some home building stocks, such as Pulte Homes Inc

, which fell 1.4 percent to $10.21.

Caterpillar and United Technologies ranked as the top two drags on the Dow, with Caterpillar shedding 7.4 percent to $51.72, and United Tech off 2.4 percent at $66.83.

Caterpillar posted stronger-than-expected earnings but forecast 2010 profit below expectations, while United Tech posted a 6 percent drop in quarterly profit and its finance chief warned of a tough first quarter.

Obama, in his first State of the Union address, is expected to promise more jobs and a trimmer budget deficit. Political risk has been a concern among investors recently. The S&P 500 has fallen more than 5 percent over the last week, partly due to uncertainty surrounding banking regulation.

On the Nasdaq, Gilead Sciences Inc and Yahoo Inc reported stronger-than-expected results late Tuesday. Gilead gained 7 percent to $48.02, while Yahoo rose 0.6 percent to $15.91.

Boeing Co gave the Dow its biggest boost, rising 5.6 percent to $60.93 after reporting that it swung to a quarterly profit as revenues soared 42 percent.

The Fed's statement is due at around 2:15 p.m., while the State of the Union address is slated for 9:00 p.m. tonight (0200 GMT).

(Reporting by Edward Krudy; Editing by Jan Paschal)