* Most Fed policymakers say rate rise likely needed 'soon'
* Tiffany dazzles as turnaround plan takes hold
* Dow down 0.25 pct, S&P down 0.1 pct, Nasdaq up 0.2 pct (Updates to after Fed minutes)
By Caroline Valetkevitch
May 23 (Reuters) - The S&P 500 erased losses to trade little changed on Wednesday after minutes from the last Federal Reserve meeting suggested higher inflation may not result in faster interest rate hikes.
Most Fed policymakers thought it likely another interest rate increase would be warranted "soon" if the U.S. economic outlook remains intact, and that many participants saw little evidence of general overheating of the labor market, minutes of the central bank's last policy meeting showed.
"The market is probably breathing a little bit of a sigh of relief knowing that inflation even a bit above two percent may not necessarily mean a faster rate of increases," said Mike Baele, managing director at U.S. Bank Private Client Wealth Management in Portland, Oregon.
The central bank has lifted borrowing costs once so far this year, in March, and policymakers are currently about evenly split between those who expect two more rate rises this year and those who anticipate three. Investors overwhelmingly expect a rate rise at the next meeting on June 12-13.
Shares of rate-sensitive utilities and real estate gained following the release of the minutes, leading percentage gains among sectors.
At 2:36 p.m. ET, the Dow Jones Industrial Average fell 60.9 points, or 0.25 percent, to 24,773.51, the S&P 500 lost 2.04 points, or 0.07 percent, to 2,722.4 and the Nasdaq Composite added 13.82 points, or 0.19 percent, to 7,392.28.
Tiffany surged 21.8 percent after the jeweler's quarterly results blew past estimates and the company raised its full-year profit forecast and announced a $1 billion buyback program.
Declining issues outnumbered advancing ones on the NYSE by a 1.09-to-1 ratio; on Nasdaq, a 1.05-to-1 ratio favored decliners.
The S&P 500 posted 6 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 70 new highs and 38 new lows. (Additional reporting by Chuck Mikolajczak in New York and Medha Singh in Bengaluru; Editing by Sriraj Kalluvila and Nick Zieminski)