This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

U.S. stocks fell with bonds, while the dollar pared its decline, after comments from Federal Reserve officials spurred speculation on higher borrowing costs amid uneven growth in the world's largest economy.

The benchmark gauge for American equities retreated from a record high after New York Fed President William Dudley said the central bank could potentially raise interest rates as soon as next month.

Meanwhile, Atlanta's Fed chief Dennis Lockhart said he's confident growth is accelerating, setting the stage for at least one hike this year.

Yields on two-year U.S. notes, the coupon maturity most sensitive to policy expectations, climbed as the dollar trimmed a drop of as much as 1.2 percent. Crude rose above $46 a barrel.

Stocks in the U.S. have gained over the past month, while the dollar's lost ground, as Fed officials weighed whether to increase borrowing costs amid conflicting signals given by a strengthening jobs market and weak growth.

Investors expect about one rate hike between now and the end of next year, according to federal funds futures contracts, and they marked up probabilities slightly on Tuesday.

Dudley said such estimates are "too low" and "the market is complacent about the need for gradually snugging up short-term interest rates over the next year or so."

"Dudley wants to keep expectations grounded," said Yousef Abbasi, a global market strategist at JonesTrading Institutional Services LLC. "You have seen some stronger employment data, but other pieces of data are showing a struggle still — retail sales, inflation reads have been among recent disappointments. It's just reality — rates might move higher by December if jobs data continue to come in better."

With traders sifting through U.S. economic reports to gauge prospects for growth, data Tuesday showed home construction unexpectedly accelerated in July to the fastest pace in five months as factory production increased more than forecast. Meanwhile, the cost of living was little changed, a sign subdued inflationary pressures would still give policy makers reason to keep interest rates low.

- - -

The S&P 500 index fell 0.6 percent at 4 p.m. in New York, after its valuation jumped to the highest since 2002. Phone and utilities shares led declines, falling at least 1.2 percent. Praxair Inc. surged on merger talks with Germany's Linde AG, and Morgan Stanley climbed to a seven-month high after activist Jeff Ubben's ValueAct Capital Management disclosed a 2 percent stake. Cintas Corp. jumped to a record after agreeing to buy G&K Services Inc. in a $2.2 billion tie-up of providers of workplace uniforms and corporate apparel.

The MSCI Emerging Markets index halted an eight-day rally. Qatar stocks climbed after FTSE Russell said it would relax the criteria to decide which of the nation's shares will join its developing-nation index next month.

The Stoxx Europe 600 index dropped 0.8 percent as a stronger euro weighed on exporters. Volkswagen AG slipped after a report the U.S. Department of Justice was said to find evidence of criminal acts in a diesel-emissions cheating probe.

- - -

The yields on the 10-year Treasury note rose two basis points, or 0.02 percentage point, to 1.57 percent, while those for two-year notes increased to 0.75 percent.

Traders assign coin-flip odds to a rate increase by the end of 2016, according to futures data compiled by Bloomberg. After liftoff from near zero in December, officials have twice cut their projections for the number of hikes this year, from four to two and then one, as improving U.S. economic data contrast with signs of slowing growth abroad. Investors will look to the release on Wednesday of minutes from the Federal Open Market Committee's July meeting for further insight into officials' latest thinking.

"Dudley definitely had an impact on the market," said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP, one of the 23 primary dealers that trade with the Fed. "The market's still not pricing it in," Lederer said of a 2016 Fed hike, "but the truth is a lot of people are expecting it."

The odds of an interest-rate increase at the Sept. 20-21 meeting of the Federal Open Market Committee are about 22 percent, according to pricing in federal funds futures, with the probability of a hike by December at 52 percent.

U.K. long-dated government bonds fell after investors lined up to sell them to the Bank of England in its first successful purchase operation of that debt segment since expanding its quantitative-easing program this month.

- - -

The Bloomberg Dollar Spot index, which tracks the currency against 10 major counterparts, fell 0.7 percent.

The yen briefly strengthened past 100 per dollar for the first time since the aftermath of the U.K.'s vote to leave the European Union. The pound rose 1.3 percent to $1.3042, after dropping to the weakest since June 1985 on Monday. The Canadian dollar gained for a seventh day, the currency's longest winning streak since December 2012.

The MSCI Emerging Markets Currency index rose to the highest since June 2015. South Korea's won led gains among 24 developing-nation currencies. Mongolia's tugrik, the world's worst-performing currency in August, weakened a 22nd day to the lowest level in Bloomberg data going back to 1993.

- - -

Oil closed at its highest in five weeks, bolstered by a weakening dollar and speculation that OPEC talks next month could result in a crude output freeze. Russian Energy Minister Alexander Novak told Arabic-language newspaper Asharq Al-Awsat that the nation was open to cooperating to stabilize markets after Saudi Energy Minister Khalid Al-Falih said talks in Algiers may result in action.

"The longer they can put that story out there that there's going to be a potential production cap, the better they'll be able to support prices," said Bob Yawger, director of the futures division of Mizuho Securities USA Inc. in New York. "There is no coincidence that this is happening."

Nickel dropped after posting the biggest advance in more than two weeks on Monday. Gold and copper advanced.