US STOCKS-Wall St on track for worst day since September

* Commodity prices weigh on materials, energy shares

* Fed's Dudley says conditions ripe for interest rate rise

* Kohl's earnings lead rally in retailers

* PayPal hit by WSJ report on rival service by Apple (LSE: 0R2V.L - news)

* Indexes down: Dow 1.18 pct, S&P 1.07 pct, Nasdaq (NasdaqGS: NDAQ - news) 0.87 pct (Updates to late afternoon)

By Noel Randewich

Nov 12 (Reuters) - U.S (Other OTC: UBGXF - news) . stock indexes were on track for their steepest fall in over a month on Thursday as lower commodity prices weighed on energy and materials stocks and comments by a Federal Reserve policymaker hinted at an interest-rate rise next month.

The rout hit all 10 major S&P sectors and pushed the Dow and S&P 500 below their 200-day moving averages.

Investors are keeping a watchful eye on whether the Fed in December will raise rates for the first time in nearly a decade, as is widely expected after recent strong jobs data.

In a speech on Thursday, Fed Chair Janet Yellen did not comment on the economy or the timing of a rate hike.

But New York Fed President William Dudley said "it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied."

Following rapid gains in October, stock investors still concerned about China's economy and the effects of a U.S. rate hike are taking money off the table, said Michael Matousek, head trader at U.S. Global Investors Inc in San Antonio, which manages about $1.3 billion.

"That's why you have some of this selloff. We're down but it's not like the sky is falling," Matousek said.

Still, the S&P and Dow were heading toward their worst one-day loss since Sept. 28.

At 3:04 pm (2004 GMT), the Dow Jones industrial average was down 1.18 percent at 17,492.67 and the S&P 500 lost 1.07 percent to 2,052.8. The Nasdaq Composite dropped 0.87 percent to 5,022.75.

Crude oil prices hit 2-1/2-month lows while copper and other metal prices tumbled to multi-year lows, hurt by a strong dollar, weak Chinese data and concerns of oversupply.

The energy sector sank 2.1 percent. Chevron (Swiss: CVX.SW - news) was down 2.2 percent.

The materials sector was off 1.8 percent, hurt by a 5.4 percent fall in miner Freeport-McMoRan and a 2.1 percent drop in Dow Chemical (Hanover: DCH1.HA - news) .

Retailers were a bright spot after Kohl's reported better-than-expected quarterly net sales, sending its shares up 6.5 percent.

J.C. Penney was up about 3.9 percent. Nordstrom , which was up 2.4 percent, is scheduled to report results after the close.

Cisco, also set to report after the bell, was up 0.4 percent.

PayPal's shares slid 1.9 percent after the Wall Street Journal reported Apple was in talks with U.S. banks to develop a rival payment service. Apple was flat.

Declining issues outnumbered advancing ones on the NYSE by 2,444 to 597. On the Nasdaq, 2,093 issues fell and 676 advanced.

The S&P 500 index showed four new 52-week highs and 19 new lows, while the Nasdaq recorded 30 new highs and 124 new lows. (Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Andrew Hay and James Dalgleish)