* Supervalu, Safeway slip after downgrades
* Materials, energy shares fall with oil, metals prices
* Volume keeps pace after active Monday
* Dow off 0.1 pct, S&P off 0.5 pct, Nasdaq off 0.7 pct (Updates to afternoon)
By Caroline Valetkevitch
NEW YORK, Jan 4 (Reuters) - U.S. stocks fell on Tuesday as declines in oil and metals prices dragged down energy and materials shares, while concern about lower supermarket profits hit consumer stocks.
The S&P materials index slid 1.6 percent while the energy index dipped 1.1 percent as metals and oil prices dropped after recent gains.
Shares of Supervalu Inc fell nearly 7 percent after Morgan Stanley told investors to cut holdings in the stock, saying rising food costs will crimp margins. Safeway Inc and Whole Foods Market also slid.
The market's fall followed a strong start to the new year on Monday and a robust rally through the end of 2010. The Dow and S&P 500 recently hit two-year highs as economic data pointed to solid U.S. recovery.
"It's just a bit of a hangover, but no big deal," said Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St. Louis.
He tied declines to the pullback in commodities, but he said commodity prices longer term should continue their uptrend.
"With the continuing recovery you'll need demand for raw materials," he said.
The Dow Jones industrial average dipped 12.07 points, or 0.10 percent, to 11,658.68. The Standard & Poor's 500 Index slid 6.55 points, or 0.51 percent, to 1,265.32. The Nasdaq Composite Index dropped 19.04 points, or 0.71 percent, to 2,672.48.
Materials and energy were among top-performing sectors in 2010.
While many analysts see another year of gains for the S&P 500, Morgan Stanley offered a more contrarian view, forecasting a year-end target for the S&P 500 below 2010's close.
Monday's move was accompanied by a rise in volume, with more than 7.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq -- above the 50-day moving average. The pace held strong for a second day, with 3.27 billion shares traded near midday.
Financial shares pulled back after leading gains on Monday, with the S&P financial sector falling 0.5 percent.
Shares of Supervalu dropped 6.7 percent to $8.97, while Safeway was down 3.3 percent at $21.76, and Whole Foods fell 3.5 percent to $49.00. (Reporting by Caroline Valetkevitch; Editing by Dan Grebler)