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NEW YORK (Reuters) - Stocks dipped on Thursday after signs the Federal Reserve has growing concern about its highly stimulative monetary policy, giving investors reason to pull back after a two-day rally. The minutes from the Fed's December policy meeting, released on Thursday, showed increasing reticence about adding to the central bank's $2.9 trillion balance sheet, which it expanded sharply in response to the financial crisis and recession of 2007-2009.

Some policymakers thought asset buying should be slowed or stopped before the end of 2013 while others highlighted the need for further stimulus. The Fed's policy of easy credit has helped push the S&P 500 to a 13.4 percent gain in 2012. Ending that policy would remove an incentive for investors to purchase riskier assets like stocks. "The surprise was the changes to duration and extent of that program in 2013, but given the tone in previous Fed meeting minutes, it should not have been an entire surprise," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

The Dow Jones industrial average (^DJI) dropped 21.19 points, or 0.16 percent, to 13,391.36. The Standard & Poor's 500 Index (^GSPC) shed 3.05 points, or 0.21 percent, to 1,459.37. The Nasdaq Composite Index (^IXIC) lost 11.70 points, or 0.38 percent, to 3,100.57. Economic data showed U.S. private-sector employers shrugged off a looming budget crisis and stepped up hiring in December, offering further evidence of underlying strength in the economy as 2012 ended.

The government's broader monthly payrolls report, due on Friday, is expected to show the economy created 150,000 jobs compared with 146,000 in November, according to a Reuters poll. The U.S. unemployment rate is seen holding steady at 7.7 percent. Retailers advanced after several major companies in the sector beat expectations of modest sales increases in December, with the S&P retail index (.SPXRT) up 0.4 percent. Volume was relatively strong, with about 6.68 billion shares traded on the New York Stock Exchange, NYSE MKT and Nasdaq, slightly above the 2012 daily average of 6.42 billion. Advancing stocks outnumbered declining ones on the NYSE by 1,692 to 1,321, while on the Nasdaq, decliners beat advancers 1,287 to 1,187.

FKLI spot month opened slightly higher at 1,698 but soon pulled back to 1,692 following a drop in U.S stocks on Fed concern. Today’s Support and Resistance for January contract is located around 1,690 and 1,700 respectively.