* Yellen, Fed policymakers: Some U.S. stock valuations 'stretched'
* JPMorgan, Goldman shares rally after earnings
* Fund managers see stocks overvalued, buying anyway -BofA
* Dow off 0.1 pct; S&P 500 down 0.2 pct; Nasdaq off 0.5 pct (Updates to afternoon)
By Angela Moon
NEW YORK, July 15 (Reuters) - U.S. stocks fell on Tuesday after Federal Reserve Chair Janet Yellen and her fellow Fed policymakers raised concerns about "substantially stretched valuations" in some sectors.
In the monetary policy report accompanying her congressional testimony, Yellen said that "equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched."
The Russell 2000 small-cap index dropped 0.8 percent and the Global X Social Media ETF slid 0.9 percent. Facebook shares tumbled 0.8 percent to $67.34. Twitter Inc shares slipped 0.4 percent to $38.16.
"These are the sub-industries that have caused a lot of longtime stock watchers to scratch their heads," said Kim Forrest, senior equity analyst at Fort Pitt Capital Group in Pittsburgh.
"Looking at some of these things and trying to figure out their value, it felt like the 2000 Internet bubble all over again," Forrest added.
The Dow Jones industrial average fell 7.68 points or 0.05 percent, to 17,047.74. The S&P 500 slipped 4.07 points or 0.21 percent, to 1,973.03. The Nasdaq Composite dropped 23.26 points or 0.52 percent, to 4,417.17.
According to the BofA Merrill Lynch Fund Manager Survey for July, 61 percent of global asset managers are overweight equities, the highest reading since early 2011, but 21 percent see stock markets as overvalued, the highest reading since 2000.
The major U.S. stock indexes posted modest gains and the Dow hit a record intraday high of 17,120.34 after the opening bell following earnings reports from JPMorgan Chase & Co and Goldman Sachs Group.
But the stock indexes' gains quickly disappeared after the Fed chair's comments on stock valuations at around 10:17 a.m. (1417 GMT)
JPMorgan shares shot up 3.9 percent to $58.47 and supported the Dow in afternoon trading after the biggest U.S. bank, when ranked by assets, reported second-quarter results that were not as bad as investors had feared. Shares of Goldman Sachs gained 1.2 percent to $168.87 after the company reported a 5 percent increase in second-quarter profit.
But the stock of fellow Dow component Johnson & Johnson declined 2 percent to $103.26. The diversified healthcare and consumer products company reported higher-than-expected quarterly results on sizzling sales of its new Olysio treatment for hepatitis C, but cautioned that the pill's sales will lose momentum later this year as new rivals come to market.
S&P 500 profits are seen growing 5.2 percent in the second quarter, according to Thomson Reuters data, down from the 8.4 percent growth forecast at the start of April. Revenue is seen up 3.2 percent. S&P 500 companies reporting earnings after the closing bell include Yahoo Inc and Intel Corp.
In a flurry of economic data releases, the New York Fed's Empire State Index of general business conditions climbed in July to 25.60, the highest level since April 2010, from June's reading of 19.28 and above the July forecast for 17.
Retail sales rose 0.2 percent in June after an upwardly revised gain of 0.5 percent in May, shy of the estimate calling for a 0.6 percent rise. However, core sales, which correspond most closely with the consumer spending component of gross domestic product, rose 0.6 percent in June.
In addition, U.S. import prices edged up 0.1 percent in June, shy of the 0.3 percent estimate, after increasing by a revised 0.3 percent in May. (Reporting by Angela Moon; Editing by Jan Paschal)