* Yellen "looking forward" to day of rate hike
* Private payrolls increased 217,000 in November
* Yahoo shares jump on reports could sell Internet business
* Dow down 0.7 pct, S&P down 0.9 pct, Nasdaq down 0.5 pct (Updates to late afternoon trading)
By Caroline Valetkevitch
Dec 2 (Reuters) - The Dow and S&P 500 added to losses in late afternoon trading on Wednesday, led by drops in energy shares, after comments by Federal Reserve Chair Janet Yellen suggested the U.S. central bank may be ready to raise rates.
The Nasdaq fell into negative territory, despite record highs in Alphabet, Amazon and Netflix. Yahoo jumped 5.2 percent to $35.46 after reports the company could sell its core Internet business.
The energy index was down 3.1 percent as U.S. crude oil futures hit a two-week low below $40 a barrel. The utility index was down 2 percent. Utilities tend to underperform in a higher-rate environment.
In prepared remarks to the Economic Club of Washington, Yellen said she was "looking forward" to a rate hike that will be seen as a testament to the economy's recovery from recession. She did not indicate if she still expected an increase would be warranted at the Fed's policy meeting on Dec 15-16.
Yellen also expressed confidence in the U.S. economy. Earlier in the day, data showed U.S. private employers boosted hiring in November. The U.S. government monthly jobs report is due Friday.
"I was a little surprised she sounded as hawkish as she did given we're two days away from the non-farm payrolls report and a couple of weeks away from the Fed FOMC meeting," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "The market is still digesting a couple of different things."
The Fed said in its Beige Book report of anecdotal information on business activity collected from contacts nationwide that the U.S. labor market tightened modestly in recent weeks with some upward pressure on wages.
The Dow Jones industrial average fell 126.4 points, or 0.71 percent, to 17,761.95, the S&P 500 lost 18.64 points, or 0.89 percent, to 2,083.99 and the Nasdaq Composite dropped 23.60 points, or 0.46 percent, to 5,132.71.
Yellen also is due to testify on the economic outlook before a joint Congressional committee on Thursday.
Shares of Amazon touched a record high of $684.82, while those of Netflix rose as much as 4.8 percent to $131.35. Alphabet rose as much as 1.2 percent to $793.04. Shares of Microsoft were up 1 percent at $55.78 and hit at more than 14-year high of $55.96.
Airline shares rose after Delta Air Lines Inc said it earned more per mile in November than a year ago. Delta was up 2.7 percent at $48.94, while an index of airlines was up 1.3 percent.
Declining issues outnumbered advancing ones on the NYSE by 2,340 to 676, for a 3.46-to-1 ratio on the downside; on the Nasdaq, 1,737 issues fell and 1,029 advanced for a 1.69-to-1 ratio favoring decliners.
The S&P 500 posted 21 new 52-week highs and 13 new lows; the Nasdaq recorded 80 new highs and 49 new lows. (Additional reporting by Sweta Singh and Charles Mikolajczak; Editing by Nick Zieminski and Chizu Nomiyama)