U.S. stocks dropped, led by telecommunication shares such as Verizon Communications on concern that increased competition will erode profit.

Benchmark indexes retreated in the last hour after bouncing between gains and losses for most of the session. Trading fell short of this year's daily average for a 16th day in 17 as investors contemplated the prospect of higher borrowing costs. The Federal Reserve meets June 29-30 to set policy on interest rates.

"We're wondering if just the fear of what the Fed does is the big issue in the market right now," said Jack Caffrey, equity strategist at J.P. Morgan Private Bank, which oversees $280 billion in New York. "Getting the fear out of everyone's system will be constructive for the market."

The Standard & Poor's 500-stock index fell 4.72, or 0.4 percent, to 1130.30. The Dow Jones industrial average slipped 44.94, or 0.4 percent, to 10,371.47. The Nasdaq composite index declined 12.35, or 0.6 percent, to 1974.38.

An index of telecommunication services companies had the biggest decline among the 10 industry groups in the S&P 500, falling 1 percent. Verizon dropped 44 cents, to $35.73. Cablevision Systems, the cable-television operator that competes with Verizon for customers in the New York region, began offering a $90-a-month package of TV, telephone and Web-access service. Cablevision fell 78 cents, to $21.22. SBC Communications, the No. 2 U.S. local-telephone company after Verizon, declined 20 cents, to $24.40.

Barron's reported that telephone, cable and satellite prices will decline as the companies compete more and fail to meet their growth goals.

Wal-Mart Stores fell 69 cents, to $54.93. The world's largest retailer said June sales may increase less than 4 percent, below its expectations. Walgreen, the largest U.S. drugstore chain, advanced 87 cents, to $35.77. The company said third-quarter profit rose to 33 cents a share from 29 cents as extended hours and more prescriptions lifted sales.

Other Indicators

* The New York Stock Exchange composite index fell 21.42, to 6545.16; the American Stock Exchange index rose 5.00, to 1224.60; and the Russell 2000 index of smaller-company stocks fell 1.80, to 568.74.

* Declining issues narrowly outnumbered advancing ones on the NYSE, where trading volume fell to 1.12 billion shares, from 1.49 billion on Friday. On the Nasdaq Stock Market, decliners outnumbered advancers by 5 to 4 and volume totaled 1.36 billion, down from 1.64 billion.

* The price of the Treasury's 10-year note rose $1.88 per $1,000 invested, and its yield fell to 4.69 percent, from 4.71 percent on Friday.

* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 108.77 yen, up from 108.75 late Friday, and a euro bought $1.2109, down from $1.2140.

* Light, sweet crude oil for July delivery settled at $37.63, down $1.12, on the New York Mercantile Exchange.

* Gold for current delivery fell to $394.00 a troy ounce, from $395.10 on Friday, on the New York Mercantile Exchange's Commodity Exchange.