* S&P, Nasdaq headed for biggest weekly declines since June
* Housing starts rise in July; builders advance
* Green Mountain shares up, to join Nasdaq 100
* Dow down 0.3 pct, S&P down 0.4 pct, Nasdaq flat
By Havovi Cooper
NEW YORK, Aug 16 (Reuters) - U.S. stocks fell on Friday, following the largest one-day drop in almost two months a day earlier, as retailers took a beating after reporting lackluster earnings and high-dividend names were hurt by rising interest rates.
Nordstrom became the latest department store chain to miss revenue estimates, prompting it to cut its full-year sales and profit forecasts. Shares fell 3 percent to $57.48
Other retailers' earnings have also disappointed. From Wal-Mart and Gap to Macy's and McDonald's , chains that cater to middle- and lower-income Americans are feeling the pinch of an uneven economic recovery.
"Consumers are spending money at record levels, but the incremental growth rate for spending has slowed down, reflecting the increase in taxes and higher prices at the pump," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
The S&P 500 and Nasdaq composite indexes were on track for the largest weekly declines since late June, and the Dow industrials headed for its biggest weekly drop since April.
Among the sectors down the most were consumer staples and utilities, industries that did well earlier in the year as investors were attracted by high dividend yields. As interest rates have risen, those stocks have struggled. The 10-year Treasury note yield rose to 2.86 percent, a two-year high, reducing the appeal of dividend payers. The utility index fell 1.6 percent.
Adding to the market's concern, the Thomson Reuters/University of Michigan's preliminary reading on consumer sentiment in August slipped from July's six-year high.
"We are unlikely to see a large-scale correction in the market right now, but it certainly is losing the momentum that took it to strong highs earlier this year," said Rick Meckler, president of investment firm Liberty View Capital Management in Jersey City, New Jersey.
The Dow Jones industrial average fell 41.20 points, or 0.27 percent, at 15,070.99. The Standard & Poor's 500 Index lost 6.16 points, or 0.37 percent, at 1,655.16. The Nasdaq Composite Index edged up 1.43 points, or 0.04 percent, at 3,607.54.
U.S. housing starts rose 5.9 percent in July, compared with a 9.9 percent drop in June. Homebuilders Pulte Group and Lennar Corp rallied on the news and were among the top percentage gainers on the S&P 500.
Pulte rose 2.7 percent to $16.37, while Lennar advanced 2.6 percent to $34.17.
J.C. Penney shares fell 3.3 percent to $13.60 as the retailer entered into an agreement with former board member and largest shareholder, Bill Ackman, that paves the way for him to sell his stake.
Green Mountain Coffee Roasters shares rose 3 percent to $75.11 after Nasdaq OMX said the company will replace Life Technologies in the Nasdaq 100 index on Aug. 22.
Airline stocks gained some ground, with U.S. Airways shares rising 2 percent to $16.04, but the sector is still lower for the week following a lawsuit from the Department of Justice to block the merger of US Airways and American Airlines.