U.S. stocks fell yesterday on concern that the Federal Reserve will raise interest rates through the end of the year after a government employment report signaled that inflation may be picking up.

"The fact that we may be seeing a tightening in the labor market could create inflation," said Jonathan Golub, who helps oversee $790 billion as U.S. equity strategist at J.P. Morgan Asset Management. "That's a concern from the point of view of a stock investor that cares about rising rates."

Homebuilders and utilities led the retreat as investors bet that higher rates will curb housing demand and make dividend-paying shares less attractive.

The Standard & Poor's 500-stock index fell 9.44, or 0.8 percent, to 1226.42. The Dow Jones industrial average lost 52.07, or 0.5 percent, to 10,558.03. The Nasdaq composite index fell 13.41, or 0.6 percent, to 2177.91.

For the week, the S&P 500 declined 0.6 percent, the Nasdaq was down 0.3 percent, and the Dow lost 0.8 percent.

On Tuesday, according to 64 economists surveyed by Bloomberg, the Federal Reserve will boost its benchmark interest rate by a quarter of a percentage point to 3.5 percent, the 10th such rise since June 2004. The Fed has said it plans to make future increases at a "measured" pace.

"We don't expect them to say anything substantively different, and that means another quarter-point increase in September as well," said Joseph Veranth, who helps manage $2.5 billion at Dana Investment Advisors. He predicted that the Fed will increase rates to as much as 4.25 percent by 2006.

Three of the 10 worst performers in the S&P 500 were home builders. The S&P 500 Real Estate Index slid 3.7 percent for the steepest drop among two dozen industry groups. An index of utilities slumped 1.8 percent.

Movers

Toll Brothers, the largest U.S. builder of luxury homes, fell $3.93, to $50.95. KB Home fell $3.86, to $74.50. Centex fell $2.92, to $70.46.

Exelon, the largest U.S. utility owner by market value, fell $1.69, to $52.28.

Delphi fell 82 cents, to $4.96, for the worst performance in the S&P 500. The auto-parts supplier said it borrowed $1.5 billion from banks, a day after its chief executive suggested the company must cut costs to avoid reorganization.

General Motors fell 86 cents, to $35.19, for the steepest drop in the Dow.

Goodyear Tire & Rubber gained $1.04, to $18.49, for the best rally in the S&P 500, after its second-quarter earnings doubled.

Indexes

New York Stock Exchange composite index fell 61.89, to 7453.29 .

American Stock Exchange index fell 18.96, to 1630.54.

Russell 2000 index of smaller-company stocks fell 9.05, to 662.79.

Volume

NYSE: 1.93 billion shares, down from 1.96 billion on Thursday. Decliners outnumbered advancers 7 to 2.

Nasdaq: 1.49 billion shares, down from 1.62 billion. Decliners outnumbered advancers 2 to 1.

Commodities

Light, sweet crude oil for September delivery: $62.31, up 93 cents.

Gold for current delivery: $437.20 a troy ounce, down from $437.90 on Thursday.