* Dollar recovers ground after five straight daily declines
* S&P 500 index edges up, U.S. Treasury yields rise
* Oil falls, dragging energy stocks down (Updates with late afternoon trading, adds commentary)
By Sinead Carew
NEW YORK, Jan 18 (Reuters) - The U.S. dollar rose and stocks also gained ground on Wednesday after Federal Reserve Chair Janet Yellen suggested the U.S. central bank was ready to raise interest rates quickly this year.
U.S. Treasury yields rose too after Yellen said "waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both."
Oil futures tumbled, however, dragging down the energy sector index, which was one of the biggest weights on the S&P 500.
Yellen's comments were not seen as a departure from the Fed's previous tone but they highlighted strong U.S. fundamentals which support a strong dollar, high yields and stocks.
"It just adds to the Fed's story and an argument that the economy is ready to weather interest rate hikes," said John Doyle, director of markets at Tempus Inc in Washington.
The U.S. dollar index, which measures the greenback against a basket of six other major currencies, was up 1 percent after hitting a nearly six-week low Tuesday after Trump said dollar strength was hurting trade relations with China.
With rates rising, "it's going to be more attractive for money to be in the U.S. than abroad," said Jason Pride, Director of Investment Strategy at Glenmede in Philadelphia.
The Dow Jones Industrial Average fell 22.05 points, or 0.11 percent, to close at 19,804.72, while the S&P 500 gained 4 points, or 0.18 percent, to 2,271.89 and the Nasdaq Composite added 16.93 points, or 0.31 percent, to 5,555.65.
For most of the session many investors seemed to be waiting for clarity on the incoming Trump administration's policy plans, while others were holding out for more fourth-quarter reports.
After the election Wall Street had bet heavily on Donald Trump's campaign promises of lower taxes, lighter regulation and fiscal spending. But so far in 2017, many investors have hit the pause button ahead of Friday's inauguration.
"The market's kind of treading water. We're in a tight narrow range here and we haven't really busted out of the range in a while," said John Canally, investment strategist and economist for LPL Financial in Boston. "Once the earnings season heats up, once we get past the inauguration, maybe you'll get some sort of movement once companies start to give guidance."
U.S. Treasury yields rose to session highs on Yellen's comments. Benchmark 10-year notes fell 24/32 in price to yield 2.41 percent, up from 2.33 percent late Tuesday. Prices had weakened earlier on Wednesday after data showed that U.S. consumer prices increased in December as households paid more for gasoline and rental accommodations, leading to the largest year-on-year rise in 2-1/2 years.
Gold, already lower on the inflation data and dollar strength on Wednesday, fell further after Yellen's remarks. It was last down 1 percent at $1,203.96 per ounce, erasing most of Tuesday's gains. It had risen for seven sessions.
Oil prices pared losses after settling on data showing much a bigger-than-expected draw in U.S. crude stocks. Brent futures were down 2.2 percent at $54.25 per barrel after settling down 2.8 percent while U.S. crude was down 2.1 percent at $51.36 after settling down 2.7 percent.
Additional reporting by Dion Rabouin, Chuck Mikolajczak and Karen Brettell in New York and Patrick Graham in London; Editing by Peter Cooney and James Dalgleish