The Dow and S&P 500 eased on Friday as increasing expectations the Federal Reserve could raise rates as soon as September offset optimism over a recovery in the U.S. labor market.
Stronger-than-expected jobs data for May and a pickup in wages were the latest signs of better momentum in the economy.
Wall Street's top banks said they expect the Fed to begin raising interest rates in September, followed by another increase before the end of the year, according to a Reuters poll.
"The market is excited about stronger jobs and higher wages, but before (investors) can pop the cork of the champagne bottle, they start thinking about the hangover, which is higher interest rates," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
"I think everyone is just waiting to see what happens when rates do start to rise."
The S&P utilities index .SPLRCU, which includes top dividend payers that tend to fall as prospects for higher rates rise, was down 1.3 percent and among the weakest-performing sectors. The U.S. benchmark bond yield hit its highest since October.
S&P financials .SPSY, which benefit from higher rates, were up 0.6 percent, among the day's best performing sectors, while the S&P energy index .SPNY added 0.7 percent. Energy shares bounced with oil prices.
The Dow Jones industrial average .DJI fell 56.12 points, or 0.31 percent, to 17,849.46, the S&P 500 .SPX lost 3.01 points, or 0.14 percent, to 2,092.83 and the Nasdaq Composite .IXIC added 9.33 points, or 0.18 percent, to 5,068.46.
For the week, the S&P 500 fell 0.7 percent, its second straight week of losses, the Dow was down 0.9 percent and the Nasdaq was down 0.03 percent.
The Fed has kept overnight rates near zero since December 2008 because the economic recovery has been slow. Cheap credit, however, has helped bolster the U.S. stock market.
New York Fed President William Dudley said he was concerned the economy may not be growing fast enough to absorb the slack among workers sidelined by the financial crisis. Still, Dudley said he expects the Fed would be in a position to raise rates later this year.
Boosting the Nasdaq, shares of Regeneron Pharmaceuticals Inc (REGN.O) rose 4 percent to $539.40 after a preliminary FDA review of an experimental drug it makes with Sanofi SA (SASY.PA).
Among decliners on Friday were gold miners, which dropped along with gold prices. Shares of Newmont Mining (NEM.N) were down 3.3 percent at $25.91.
Zumiez (ZUMZ.O) dropped 19.3 percent to $24 as it estimated current-quarter profit and revenue below analysts' expectations.
NYSE decliners outnumbered advancers 1,629 to 1,426, for a 1.14-to-1 ratio; on the Nasdaq, 1,782 issues rose and 962 fell, for a 1.85-to-1 ratio favoring advancers.
The S&P 500 posted 16 new 52-week highs and six new lows; the Nasdaq Composite recorded 117 new highs and 42 new lows.
About 6.2 billion shares changed hands on U.S. exchanges, slightly below the 6.3 billion daily average for the last five sessions, according to BATS Global Markets.
(Additional reporting by Tanya Agrawa; Editing by Saumyadeb Chakrabarty and Nick Zieminski)