By Noel Randewich and Kanchana Chakravarty

(Reuters) -The S&P 500 ended lower on Wednesday, with investors spooked by Middle East tensions, while a tame inflation report calmed concerns around tariff-driven price pressures and traders awaited more details on China-U.S. trade talks.

Wall Street erased modest gains after sources said the United States is preparing a partial evacuation of its Iraqi embassy due to heightened security risks in the region. A senior Iranian official said earlier that Tehran will strike U.S. bases in the region if nuclear negotiations fail and conflict arises with the United States.

Amazon lost 2% and Nvidia dipped 0.8%, with both weighing on the S&P 500.

Data showed consumer prices increased only marginally in May, while economists expect inflation to accelerate in the coming months due to the Trump administration's import tariffs.

Annually, headline inflation stood at 2.4%, lower than the 2.5% rise estimated by economists polled by Reuters.

"There's still concern about Trump's tariffs being inflationary but this report was better than expected and it fuels hope that the Federal Reserve will be able to step in with rate cuts later on this year," said Robert Pavlik, senior portfolio manager at Dakota Wealth.

Traders project a 70% chance that the Federal Reserve will cut interest rates by its September policy meeting, according to the CME Group's FedWatch tool.

A U.S.-China trade deal is "done," U.S. President Donald Trump said, hours after negotiators from Washington and Beijing agreed on a framework to get a fragile trade truce back on track and remove Chinese export restrictions on rare earth minerals and other critical industrial components.

The S&P 500 declined 0.27% to end the session at 6,022.24 points.

The Nasdaq declined 0.50% to 19,615.88 points, while the Dow Jones Industrial Average ended essentially unchanged at 42,865.77 points.

Of the 11 S&P 500 sector indexes, seven declined, led lower by consumer discretionary, down 1.02%, followed by a 0.98% loss in materials.

With investors betting the United States will reach trade agreements that reduce Trump's steep trade barriers, the S&P 500 is now trading just below its February record high.

"The worst-case scenario is probably behind us. There's a little bit of face-saving for both sides," said John Praveen, managing director at Paleo Leon in Princeton, New Jersey. "They got an agreement. The question is whether it will be implemented."

According to a White House official, the agreement with China allows the U.S. to charge a 55% tariff on imported Chinese goods, including a 10% baseline "reciprocal" tariff, a 20% tariff for fentanyl trafficking and a 25% tariff reflecting pre-existing tariffs. China will charge a 10% tariff on U.S. imports, the official said.