(Updates with U.S. markets' closing levels)
* Fed lifts rates as expected
* Gasoline buildup takes down crude oil prices
* Treasury yields lower on the day
By Caroline Valetkevitch
NEW YORK, June 14 (Reuters) - U.S. stocks mostly fell while the dollar cut its losses on Wednesday after the Federal Reserve delivered a widely expected U.S. interest rate hike.
A slide in technology stocks weighed on the Nasdaq and S&P 500 as investors worried about the pace of economic growth after the rate increase and weaker-than-expected inflation data.
The U.S. central bank lifted the benchmark lending rate by a quarter percentage point and announced it would begin cutting its huge holdings of bonds and securities this year.
Its policy-setting committee also indicated the economy has been expanding moderately, and that it viewed a recent softness in inflation as transitory, according to a statement following a two-day meeting.
Though they remained lower on the day, U.S. Treasury yields pared declines, with traders citing the hawkish tone of the statement. Data earlier Wednesday showed U.S. consumer prices unexpectedly fell in May, suggesting a softening in domestic demand.
The U.S. yield curve flattened, with the difference between short-dated two-year Treasury yields and benchmark 10-year yields narrowing to a difference of 78.58 basis points , the smallest since Sept. 9.
"It just looks like the Fed is sticking to their story and the market remains highly skeptical that the Fed is going to be able to deliver just based upon underlying data. I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly," said Mark Cabana, head of U.S. short rates strategy at Bank of America Merrill Lynch in New York.
Benchmark 10-year U.S. Treasury notes rose 23/32 in price to yield 2.1273 percent, from 2.207 percent late on Tuesday.
The dollar index was last down 0.06 percent, with the euro unchanged at $1.1214.
Crude oil prices fell sharply following an unexpectedly large buildup in gasoline stocks. That weighed heavily on U.S. energy sector shares, which contributed to the S&P 500's decline.
The Dow Jones Industrial Average was up 46.09 points, or 0.22 percent, to end at 21,374.56, the S&P 500 lost 2.43 points, or 0.10 percent, to 2,437.92 and the Nasdaq Composite dropped 25.48 points, or 0.41 percent, to 6,194.89.
The pan-European FTSEurofirst 300 index lost 0.35 percent and MSCI's gauge of stocks across the globe gained 0.12 percent.
U.S. crude fell 3.7 percent to settle at $44.73 per barrel and Brent settled at $47.00, down 3.5 percent.
Gold turned negative after the Fed rate increase. Spot gold fell 0.2 percent at $1,263.03 an ounce.
Additional reporting by Rodrigo Campos, Sam Forgione and Scott DiSavino in New York; Editing by Nick Zieminski and James Dalgleish