Updates to afternoon

By Johann M Cherian, Sanchayaita Roy and Saeed Azhar

Aug 14 (Reuters) - Wall Street's main indexes eased on Thursday, after a hotter-than-expected producer prices report dampened investor expectations of potential interest-rate cuts by the Federal Reserve this year.

A Labor Department report showed producer prices increased the most in three years in July due to a surge in the costs of goods and services, suggesting a broad pickup in inflation was imminent.

Traders trimmed their Fed rate-cut expectations for the rest of the year to about 56.7 basis points, according to data compiled by LSEG, compared with around 63 bps before the report.

But they are still fully pricing in a quarter-percentage-point cut in September.

"The implication is that the Fed is going to offer a 25-(basis point) cut in September. But it will be a hawkish cut. It's way too early still for the Fed to wish to guide the market towards an extended easing cycle," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

"The next important thing will be the Expenditures Price Index later this month. If there are signals that there's inflation broadly in services, the market will take that adversely."

A separate report on Thursday showed the number of Americans filing new applications for jobless benefits fell last week.

At 02:04 p.m. ET, the Dow Jones Industrial Average .DJI fell 98.37 points, or 0.22%, to 44,823.90, the S&P 500 .SPX lost 3.70 points, or 0.05%, to 6,463.05 and the Nasdaq Composite .IXIC lost 3.04 points, or 0.01%, to 21,710.10.

Recent data reflecting labor market weakness and a moderate rise in consumer prices had strengthened expectations that the central bank will potentially lower interest rates next month.

However, Thursday's report fanned concerns that U.S. tariffs on imports could start to impact prices in the coming months and dampen a rally in U.S. stocks that had helped the benchmark S&P 500 .SPX and tech-heavy Nasdaq .IXIC log record highs over the past two sessions.

"U.S. stocks are pricy," said Sam Stovall, chief investment strategist CFRA Research.

The S&P 500 index is trading at a price-to-earnings ratio of 23 based on forward estimates, or a near-40% premium to its 20-year average, he said.

The hotter-than-expected PPI report now has investors pulling petals from a daisy saying "They (the Fed) will cut rates, they won’t cut rates," he added.

On Thursday, seven of the 11 S&P 500 sectors declined, with materials .SPLRCM falling the most, down 1.1%.

St. Louis Fed President Alberto Musalem, a voting member on the Federal Open Market Committee this year, said a half-point rate cut at the Fed's September meeting is not warranted, a day after Treasury Secretary Scott Bessent said it was possible.

Cisco Systems CSCO.O lost 1.6% after the network equipment manufacturer's broadly in-line forecast did little to encourage investors.

Deere & Co DE.N fell 6.85% after the farm-equipment maker reported a lower quarterly profit and tightened its annual profit forecast, while Tapestry TPR.N plunged 14% after the Coach handbag maker forecast annual profit below estimates.

Both companies warned of tariffs impacting their businesses.

In geopolitics, focus will be on President Donald Trump's upcoming meeting with Russia's President Vladimir Putin as he seeks to achieve a halt to the Ukraine conflict.

Declining issues outnumbered advancers by a 3.26-to-1 ratio on the NYSE.

On the Nasdaq, declining issues outnumbered advancers by a 2.56-to-1 ratio.

The S&P 500 posted 13 new 52-week highs and one new low while the Nasdaq Composite recorded 65 new highs and 69 new lows.

(Reporting by Johann M Cherian and Sanchayaita Roy in Bengaluru and Saeed Azhar in New York ; Editing by Devika Syamnath and Aurora Ellis)

((johann.mcherian@thomsonreuters.com;))