* Investors watch struggling small-cap index
* Deere shares fall after results; Macy's dips
* Dow down 0.6 pct, S&P 500 down 0.5 pct, Nasdaq down 0.7 pct (Updates to close)
By Caroline Valetkevitch
NEW YORK, May 14 (Reuters) - U.S. stocks fell on Wednesday, with the Dow and S&P 500 retreating from recent record highs, as small caps resumed their sell-off and consumer discretionary shares lagged.
The S&P consumer discretionary index was down 1.1 percent and led the decline on the S&P 500. The S&P retail index lost 1.1 percent.
Macy's shares dipped 0.2 percent to $57.83 after the department store operator reported sales that missed expectations. Retailer Fossil Group Inc was the biggest percentage decliner on the S&P 500, a day after it gave a second-quarter profit outlook that was much lower than expected. Shares sank 10.3 percent to $100.00.
Some analysts are focusing on retailers' results for signs the economy is stabilizing after weakness over the winter months.
"A lot of people are looking for evidence to confirm the tough winter was the only reason we saw slowing" in economic activity, said Joe Bell, senior equity analyst at Schaeffer's Investment Research in Cincinnati, Ohio.
The Russell 2000 index of small-cap stocks dropped 1.6 percent, underperforming the benchmark S&P 500 and extending a divergence that has been pronounced throughout 2014.
The Dow Jones industrial average fell 101.47 points, or 0.61 percent, to 16,613.97, the S&P 500 lost 8.92 points, or 0.47 percent, to 1,888.53, and the Nasdaq Composite dropped 29.54 points, or 0.72 percent, to 4,100.63.
At its session low on Friday, the Russell 2000 was down exactly 10 percent from the intraday record high set in early March. Some analysts are concerned that persistent weakness in small-caps could spread throughout the market.
The S&P 500 is coming off three straight daily advances, marking record closing highs for the last two sessions. On Tuesday it climbed above 1,900 for the first time. The Dow ended at record highs for the three previous sessions.
The biggest drag on both the Dow and the S&P 500 on Wednesday was IBM, whose shares shed 1.8 percent to $188.72. IBM said in a filing it expects hardware profit to be flat year-over-year in 2014.
Among other decliners, Deere & Co fell 2 percent to $91.70. The farm equipment company cut its full-year sales outlook even as it reported a better-than-expected quarterly profit.
In late afternoon trading, Wal-Mart shares fell sharply in an instant as volume spiked in an out-of-the-ordinary mini "flash crash," data showed. The stock ended down 0.5 percent at $78.74.
Shares of online retailer Zulily Inc shot up 9.3 percent to $34.99 in heavy volume of more than 9.7 million shares, after dropping to a record low earlier in the day following the expiration of the lockup period after its initial public offering in November.
U.S. data showed potential signs inflation pressures may be creeping up. Producer prices recorded their largest increase in 1-1/2 years in April as food prices surged.
Shares of The New York Times Co dropped 4.5 percent to $15.06 after an unexpected announcement by the company that managing editor Dean Baquet would take over as executive editor of the company's flagship newspaper, effective immediately. The company did not say why Jill Abramson was departing as executive editor.
About 5.3 billion shares changed hands on U.S. exchanges, below the 6.1 billion month-to-date average, according to data from BATS Global Markets. (Editing by Bernadette Baum, Nick Zieminski)