* Asset managers dip as Partners Group caps withdrawals

on PE fund

* Broadcom ( AVGO ) rises ahead of quarterly results after market

close

* U.S. services sector activity picks up in May, data

shows

* Broadcom ( AVGO ) results expected shortly

(Updates to market close)

By Stephen Culp and Medha Singh

NEW YORK, June 3 (Reuters) - Wall Street stocks pulled

back from record highs on Wednesday as flaring tensions in the

Middle East and rising crude prices stoked inflation jitters and

convinced investors to take some profits.

All three major U.S. stock indexes closed in negative

territory, dragged lower by financials and tech

, with the small-cap Russell 2000

underperforming its larger-cap counterparts.

Chips advanced, indicating the artificial

intelligence fervor is alive and well. Still, most of the

Magnificent Seven group of AI-related megacaps were lower.

"The AI names are trading on their own completely separate

world, largely oblivious to macro and geopolitical risk, at

least within reason," said Ross Mayfield, investment strategy

analyst at Baird in Louisville, Kentucky. "And so there's going

to be a bid for those names, especially on days where everything

else looks a little bit less attractive."

The S&P Software & Services index declined. It

has been battered in recent months by fears of AI disruption.

Middle East hostilities intensified as the U.S. and Iran

traded a new round of air strikes, the latest test of a shaky

ceasefire.

Oil prices rose, adding to worries that upward pressure on

energy prices could metastasize into broader, systemic

inflation.

"This market continues to demonstrate a tug of war between

fundamentals in the U.S. economy, which are incredibly positive,

and concerns that the duration of the conflict in the Middle

East will lead to downside risks," said Bill Northey, senior

investment director at U.S. Bank Wealth Management, Billings,

Montana. "Our framework is centered around the duration of the

closure of the Strait of Hormuz as the primary input to

inflation expectations."

"The longer the duration of that closure, the less likely

the Federal Reserve will be able to ease in 2026," Northey

added.

In fact, financial markets are pricing more than a 40%

likelihood of a rate hike at the conclusion of the U.S. Federal

Reserve's December meeting, up from 9.1% one month ago,

according to CME's FedWatch tool.

New York Fed President John Williams reiterated his position

that the central bank does not need to change interest rates

despite upside inflation risks, stating monetary policy is "in

the right place."

Economic data suggested the labor market was stable, and the

services sector continued to expand, but input prices remained

elevated and corporate spending plans appeared soft amid rising

energy costs and geopolitical uncertainties.

The Beige Book, the Fed's regional economic survey, showed

economic activity gathered steam in recent weeks, employment was

little changed, but the fallout from higher energy prices due to

the war was pervasive.

According to preliminary data, the S&P 500 lost 54.11

points, or 0.74%, to end at 7,555.67 points, while the Nasdaq

Composite lost 230.97 points, or 0.85%, to 26,862.93.

The Dow Jones Industrial Average fell 581.84 points, or

1.13%, to 50,725.95.

Among chipmakers, Marvell ( MRVL ), Intel ( INTC ), Qualcomm ( QCOM )

, and Sandisk ( SNDK ) outperformed.

Asset managers dropped after Switzerland's Partners Group

capped withdrawals from an $8.6 billion private equity

fund. KKR, Blackstone, Blue Owl and Ares

Management ( ARES ) all lost ground.

GameStop ( GME ) advanced after the original meme-stock

posted a rise in quarterly revenue and unveiled a $2 billion

share buyback program.

Elon Musk's SpaceX plans to price its IPO at $135 a share to

raise a record $75 billion, a source familiar with the matter

told Reuters on Tuesday.

Broadcom ( AVGO ) results were expected shortly.