NEW YORK, US - US stocks on Monday fell along with crude oil prices on demand worries in a slowing global economy and ahead of a Federal Reserve meeting expected to leave interest rates on hold.

The Dow Jones Industrial Average dropped 42.17 points (0.37 per cent) to close at 11,284.15 and the tech-heavy Nasdaq composite fell 25.40 points (1.10 per cent) to 2,285.56.

The broad-market Standard & Poor's 500 index slid 11.30 points (0.90 per cent) to finish at 1,249.01.

New York's main contract, light sweet crude for September delivery, fell US$3.69 to close at US$121.41 a barrel.

The dive in oil prices was mainly due to concerns about the sluggish US economy, the world's largest energy consumer, and its drag on global growth, analysts said.

'All three of the major market indexes finished in the red, thanks to economic concerns a day ahead of the Fed's decision on interest rates', said Mr Mark Fightmaster, an analyst at Shaeffer's Investment Research.

The market widely expects the Federal Open Market Committee to maintain the central bank's key short-term interest rate unchanged at 2.0 per cent, given the economy's lacklustre growth and rising inflationary pressures.

But focus was on the FOMC's accompanying statement for clues on the future direction of interest rates as a housing slump, tighter credit and surging oil and food prices bind the world's largest economy.

'Given the fluid nature of things in the economy and the financial markets, the directive isn't likely to provide any closure for those looking for a telltale hint on when the next policy move will occur. It should convey the idea that the Fed is still in a wait-and-see mode', said Mr Patrick O'Hare, an analyst at Briefing.com.

The Commerce Department reported that consumer spending, which drives two-thirds of gross domestic product (GDP) activity, rose a mere 0.6 per cent in June from May, despite stimulus tax rebates to tens of millions of American households.

'Without an additional government policy jolt, the economy is headed for a very slow second half of 2008. Either the third or fourth quarters should register negative GDP growth', said Prof Peter Morici, an economist at the University of Maryland.

Inflation leapt last month, the department said. The personal consumption expenditures price index up 0.8 per cent in the strongest monthly gain since 1997, while core PCE, excluding food and energy prices, rose 0.3 per cent.

Oil majors skidded. ExxonMobil shares dropped 3.91 per cent to US$76.60 and Chevron lost 1.79 per cent at US$8.28.

Financial stocks were docked after HSBC, Europe's biggest bank by market worth, reported net profit plunged 29 per cent during the first half because of ballooning credit writedowns and bad consumer debts.

Its North America subsidiary swung into a pre-tax loss of US$2.9 billion due to its exposure to the US subprime, or high-risk mortgage crisis.

Bank of America fell 2.13 per cent to US$32.62, Goldman Sachs dropped 2.27 per cent to US$177.86 and Lehman Brothers lost 3.81 at US$17.94.

Bond prices retreated. The yield on the 10-year US Treasury bond rose to US$3.972 per cent from US$3.948 Friday, while that on the 30-year bond climbed to 4.589 per cent from 4.569 per cent.

Bond yields and prices move in opposite directions. -- AFP