* U.S. heading in the direction of rate hike - Fed's Fischer
* Major U.S. indexes set to end the week higher
* July consumer spending picks up slightly
* U.S. crude jumps 6 pct; Chevron up 4.4 pct
* Indexes down: Dow 0.43 pct, S&P 0.34 pct, Nasdaq 0.15 pct (Adds details, comment, updates prices)
By Tanya Agrawal
Aug 28 (Reuters) - U.S. stocks looked set to snap a two-day rally on Friday after comments by a top Federal Reserve official appeared to suggest that a September rate rise was still possible.
Fed Vice Chairman Stanley Fischer said the United States was heading in the direction of higher rates and that recent economic data had been impressive.
Fischer also said the Fed could not wait for the case to be overwhelming to increase rates and that the recent market volatility could settle quickly.
Fischer's remarks to CNBC added to a general reluctance to take big positions into the weekend after days of tumultuous trading that featured both the market's worst session in four years and biggest two-day gain since the financial crisis.
Following Fischer's comments, overnight indexed swap rates implied traders now see a 35 percent chance the Fed would raise rates in September, up from 22 percent earlier in the week.
Despite Friday's declines, the three main U.S. indexes were on track to end the week higher after a brutal selloff early in the week sparked by worries about the health of China's economy.
"A lot of investors are rebalancing their portfolios before going into the weekend and the dips that we saw earlier in the week were good buy opportunities," said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin.
The recent market turmoil, that saw the Dow lose more than 1,000 points at one point on Monday, has prompted several strategists to cut their end-of-year forecasts for indexes.
Credit Suisse, for example, cut its year-end target for the S&P 500 to 2,100 from 2,200 on Friday.
At 13:59 ET (1759 GMT), the S&P 500 was down 6.67 points, or 0.34 percent, at 1,980.99, the Dow Jones industrial average was down 72.16 points, or 0.43 percent, at 16,582.61, and the Nasdaq composite was down 7.00 points, or 0.15 percent, at 4,805.71.
Strong gains over the last two days suggested that the worst might be over, but the CBOE Volatility index indicated that the market was still more volatile than usual.
The index - popularly known as the "fear index" - was up 2.3 percent at 26.70. It soared to a more than 6-year-high earlier in the week.
"The VIX average for the year has been about 15 and I definitely expect it to be above 20 in the short-term," said Frederick.
In China, stocks jumped more than 4 percent for the second day as authorities announced that pension funds managed by local governments will start investing 2 trillion yuan ($313 billion) as soon as possible in stocks and other assets.
Eight of the 10 major sectors were lower, with the utilities index's 1.5 percent fall leading the decliners. The energy index jumped 2.6 percent as oil added to gains a day after oil prices jumped the most in a day since 2009.
Chevron's 4.4 percent gain provided the biggest boost to the Dow and the S&P 500.
Data released on Friday showed U.S. consumer spending picked up a bit in July as households bought more automobiles, offering further evidence of strength in the economy.
Autodesk was down 5.3 percent at $47.37 after the maker of computer-aided design software cut its full-year profit and revenue forecast for the second time this year.
Big Lots was jumped 15 percent to $48.31 after its second-quarter profit beat expectations and the company raised its full-year adjusted profit forecast.
GameStop fell 7 percent to $42.99 after brokerage Benchmark Co cut the video game retailer's stock to "sell" from "hold" despite better-than-expected quarterly results.
Advancing issues outnumbered decliners on the NYSE by 1,787 to 1,224. On the Nasdaq, 1,733 issues rose and 1,017 fell.
The S&P 500 index showed one new 52-week high and one new lows, while the Nasdaq recorded 16 new highs and 21 new lows. (Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)