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* Portfolio adjustments trigger late session selloff
* Data signals soft U.S. economy but not abrupt slowdown
* MSCI Index rebalance could add to volatility
* Indexes: Dow off 0.4 pct; S&P 500 down 0.5 pct; Nasdaq down 0.3 pct
By Angela Moon
NEW YORK, May 31 (Reuters) - U.S. stocks fell in late afternoon on Friday, setting major indexes on course for a weekly decline, but the S&P 500 was headed for its seventh straight month of gains, the longest winning streak since 2009.
After fluctuating between modest losses and gains for most of the day, the selloff came as investors adjusted their portfolios at month's end.
"It may be portfolio managers adjusting their positions, thinking why not take some profits after this tremendous rally we had this month and this year," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
The S&P 500 is up about 3 percent so far this month and about 15 percent in 2013 after repeatedly scaling record highs. Over the past seven months, the index has appreciated about 16 percent.
Trading has been volatile for most of the week on concerns that the Fed may ease its monetary policy, the main engine behind a strong rally in equities.
But on Friday, in the latest piece of data that eased some anxiety about the Fed, consumer spending fell in April for the first time in almost a year and inflation pressures were subdued, pointing to a slowdown in economic activity.
Trading could become more volatile near the market's close because the MSCI indexes are slated to rebalance at the end of the day. Credit Suisse forecast $19 billion in total trading as a result of the rebalancing, with $15 billion related to developed markets.
The Dow Jones industrial average was down 59.63 points, or 0.39 percent, at 15,264.90. The Standard & Poor's 500 Index was down 8.68 points, or 0.52 percent, at 1,645.73. The Nasdaq Composite Index was down 10.78 points, or 0.31 percent, at 3,480.51.
The stock market's advance this year has come largely on supportive monetary policies from central banks around the world, which has helped the markets ignore the Wall Street adage of "sell in May, go away" - a historical trend of seasonal weakness that tends to begin in May and continue through the summer. In May 2012, the S&P 500 fell 6.3 percent.
Friday's data showed consumer spending, which accounts for about 70 percent of U.S. economic activity, was held down by weak demand for utilities and lower gasoline prices at the pump.
When adjusted for inflation, consumer spending increased just 0.1 percent in April after rising 0.2 percent in March.
In a separate report, the Institute for Supply Management-Chicago business barometer rose more than expected in May and showed expansion in business activity after contraction in April.
Netflix Inc was one of the biggest gainers of the day, jumping 1.2 percent to $225.30 and supporting the Nasdaq.
The Thomson Reuters/University of Michigan final reading on consumer sentiment for May was 84.5 - the highest level since July 2007 - and above expectations for a reading of 83.7.
Palo Alto Networks shares lost 10 percent to $48.87 after the company gave an outlook that was below expectations.
The Food and Drug Administration declined to approve Endo Health Solutions Inc's injectable testosterone drug and asked for a better risk-management plan. However, it did not ask the company to perform an additional clinical study. Endo's stock rose 2.1 percent to $36.70.
One of the biggest minority shareholders in Clearwire Corp on Thursday urged the wireless company to recommend rejection of Sprint Nextel Corp's buyout offer after Dish Network Corp made a counter bid.
Clearwire shares fell 0.8 percent to $4.46. Sprint shares rose 0.7 percent to $7.39.