* U.S. Midwest business barometer contracts in April
* Fed's FOMC begins 2-day monetary policy meeting
* U.S. Feb home prices see best yearly rise in almost 7 years
* Indexes down: Dow 0.5 pct; S&P 0.4 pct; Nasdaq 0.1 pct
U.S. stocks fell on Tuesday after a weaker-than-expected index of Midwest business activity, and investors booked profits from a rally that took the benchmark S&P 500 index to a record.
The market started off flat but dipped just before the public release of the Institute for Supply Management-Chicago business activity index at 9:45 a.m. (1345 GMT). But the index is released to subscribers via conference call 3 minutes earlier.
"The data has gotten people a bit nervous but this wasn't crucial data for the market anyway," said Uri Landesman, president with hedge fund Platinum Partners in New York.
"At this point, at these levels, the market is only in for perfection. Anything else that shows otherwise, the market will not tolerate."
Data showed business activity unexpectedly contracted in the Midwest in April to its lowest level since September 2009 as a gauge of employment pulled back.
Other economic data was mixed, leaving investors cautious before central banks' meetings this week that could provide a better picture of the outlook for the global economy. Their decisions could be a catalyst to take the S&P 500 index above 1,600.
The Dow Jones industrial average was down 67.61 points, or 0.46 percent, at 14,751.14. The Standard & Poor's 500 Index was down 5.55 points, or 0.35 percent, at 1,588.06. The Nasdaq Composite Index was down 3.49 points, or 0.11 percent, at 3,303.53. The S&P 500 ended at a record 1,593.61 on Monday.
The Fed's Open Market Committee will begin a two-day meeting on monetary policy, with a statement expected on Wednesday. Recent weak U.S. economic data and signs of low inflation point to the Fed's maintaining its pace of bond buying to stimulate the economy.
The European Central Bank will convene on Thursday, and a Reuters poll of economists on Thursday said policymakers are expected to cut interest rates.
The S&P 500 index ended at an all-time high on Monday as growth-oriented stocks, including energy and technology, led the way to the index's sixth rise in the past seven sessions.
A positive finish to April would deliver a sixth straight month of gains. That would be the longest winning streak since September 2009 when the index rallied for seven straight months. The broad market index is up 1.6 percent for the month.
"Short interest is rising, but the market continues to move higher. If the S&P were to break over 1,600 we could see a monster short squeeze," said Jim Brown, editor of options analytics firm optioninvestor.com in a note late on Monday.
Other data on Tuesday showed U.S. single-family home prices increased in February to the best annual rise since May 2006 in a sign the housing recovery remains on track.
The Conference Board's consumer confidence index rebounded in April as Americans felt better about the outlook for the economy and their income prospects.
In earnings, financial stocks were likely to be in focus after UBS beat expectations for first-quarter profit thanks to a surge in trading income from its investment bank and more fees from wealthy clients. [ID:nL6N0DH07H} Strong results from banks and expectations of more central bank stimulus took European shares to a 4-1/2 year high.
Pfizer Inc shares were down 2.3 percent at $29.73 after posting lower-than-expected quarterly earnings and revenue. The largest U.S. drugmaker also trimmed its full-year profit outlook.
U.S. retailer Best Buy Co Inc retreated from its ill-fated European expansion by selling its stake in a joint venture to Carphone Warehouse Group for less than half what it paid five years ago. Best Buy shares jumped nearly 10 percent to $26.49.
Avon Products Inc reported a better-than-expected first-quarter profit in the latest sign the beauty products company's business continues to improve. The stock was up 4.9 percent at $23.33.