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US STOCKS-Wall Street falls as focus turns on Fed

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window)

* All eyes on Fed policy decision on Wednesday

* Ford sees additional $1 bln in inflationary costs, shares fall

* Indexes down: Dow 1.11%, S&P 1.12%, Nasdaq 0.69% (Adds comment, details; updates prices)

By Devik Jain and Ankika Biswas

Sept 20 (Reuters) - Wall Street's main indexes fell on Tuesday as investors positioned themselves for new economic projections and another large interest rate hike by the U.S. Federal Reserve this week to quell decades-high inflation.

The benchmark S&P 500 index has lost 19% so far this year as investors fear aggressive policy tightening measures by the Fed could tip the U.S. economy into a recession, with recent dire outlooks from delivery firm FedEx Corp and automaker Ford Motor Co adding to woes.

Shares of Ford dropped 10.5% after it flagged a bigger-than-expected $1 billion hit from inflation and pushed delivery of some vehicles to the fourth quarter due to parts shortages.

Adding to a mixed set of economic data, a Commerce Department report showed residential building permits - among the more forward-looking housing indicators - slid by 10% to 1.517 million units, the lowest level since June 2020.

"Markets have been under some pressure because it's clear that the economy and the growth rate of earnings are in the process of slowing and going to slow even further," said Hugh Johnson, chief economist of Hugh Johnson Economics in Albany, New York.

"The concern is that even though it's slowing, the Federal Reserve will tell us in a very hawkish way that they're very focused on the 2% rate of inflation and they're going to continue to lean towards restraint or be very tough until they get to that 2% level."

The U.S. central bank is widely expected to hike rates by 75 basis points for the third straight time at the end of its policy meeting on Wednesday, with markets also pricing in a 17% chance of a 100 bps increase and expect terminal rate at 4.49% by March 2023.

Focus will also be on the updated economic projections and dot plot estimates for cues on policymakers' sense of the endpoint for rates and the outlooks for unemployment, inflation and economic growth.

"We are going to be in an environment where month to month economic data is going to be scrutinized to a greater magnitude than it has been previously," said Doug Fincher, portfolio manager at Ionic Capital Management.

"The market believes that the Fed will get inflation under control at the expense of the economy. The question is will they achieve this through a soft landing or a hard landing."

The benchmark U.S. 10-year Treasury yield hit 3.56%, its highest level since April 2011, while the closely watched yield curve between two-year and 10-year notes inverted further.

An inversion in this part of the yield curve is viewed as a reliable indicator that a recession will follow in one to two years.

All of the 11 major S&P sectors declined, with economy-sensitive real estate and materials sectors down 2.1% each.

At 12:33 p.m. ET, the Dow Jones Industrial Average was down 345.48 points, or 1.11%, at 30,674.20, the S&P 500 was down 43.60 points, or 1.12%, at 3,856.29, and the Nasdaq Composite was down 79.80 points, or 0.69%, at 11,455.22.

The S&P 500 is trading below 3,900 points, a level that was considered by technical analysts as a strong support for the index.

Shares of rate-sensitive growth companies were mixed. Apple Inc rose 1.8%, while Alphabet Inc and Amazon.com Inc fell 1.5% and 1.2%, respectively.

PayPal Holdings Inc dipped 3% after Susquehanna Financial Group downgraded the fintech company's stock to "neutral" from "buy".

Declining issues outnumbered advancers for a 5.39-to-1 ratio on the NYSE and for a 2.57-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week high and 54 new lows, while the Nasdaq recorded 19 new highs and 292 new lows. (Reporting by Devik Jain and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta and Maju Samuel)

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