* Wal-Mart surges after results beat estimates
* NY Fed's Dudley says June, July hike "reasonable"
* Monsanto rallies after Bayer makes unsolicited bid
* Indexes end down: Dow 0.52 pct, S&P 0.37 pct, Nasdaq 0.56 pct (Updates to close)
By Noel Randewich
May 19 (Reuters) - The S&P 500 fell on Thursday to its lowest since March as Wall Street became more worried that the Federal Reserve might raise U.S. interest rates as early as June.
The timing of future Fed rate hikes in the face of a sluggish economy is a major ongoing concern among stock investors who have benefited from historically low borrowing costs since the 2008 financial crisis.
In a new blow to Wall Street's confidence, New York Fed President William Dudley said the U.S. economy could be strong enough to warrant a rate increase in June.
That followed the release on Wednesday of minutes from the Fed's April meeting that showed most policymakers thought a June rate hike was appropriate, surprising many investors who had expected policymakers to wait until September due to a lackluster economic recovery.
Higher rates choke inflation but also hamper economic expansion and reduce liquidity in stock markets.
"If they raise rates in June we're going to have real problems and this is going to be a horrible summer," said Donald Selkin, chief market strategist at National Securities in New York, who believes the threat of inflation remains low.
"This, to me, is the worst possible thing they can do."
Six of the S&P 500's sectors fell, led by a 0.95 percent loss in industrials.
The S&P 500's dip put the index at its lowest close since late March and left it about flat for 2016.
Bouncing back a bit from deeper declines, the Dow Jones industrial average closed down 0.52 percent at 17,434.99 points and the S&P 500 lost 0.37 percent to 2,040.04.
The Nasdaq Composite dropped 0.56 percent to 4,712.53.
Microsoft fell 0.96 percent and Verizon Communications lost 1.51 percent, both weighing the most on the S&P 500.
Dow component Wal-Mart's shares surged 9.58 percent after the retailer's first-quarter results beat analysts' estimates.
Monsanto gained 3.52 after disclosing German group Bayer made an unsolicited takeover proposal.
About 7.2 billion shares changed hands on U.S. exchanges, close to the 7.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.
Declining issues outnumbered advancing ones on the NYSE by 2,163 to 855. On the Nasdaq, 1,960 issues fell and 841 advanced.
The S&P 500 index showed seven new 52-week highs and four new lows, while the Nasdaq recorded 17 new highs and 82 new lows. (Additional reporting by Yashaswini Swamynathan; Editing by Nick Zieminski and James Dalgleish)