Wall St dips on caution over Ukraine and Gaza

By Rodrigo Campos

NEW YORK (Reuters) - U.S. stocks declined on Monday, though the major indexes were off their session lows, as investors remained wary of riskier assets because of instability in Ukraine and Gaza.

The day's losses were broad, with all 10 primary S&P 500 sector indexes down for the day and the S&P 500 falling under its 14-day moving average, a sign of weakness in the short term. The move extended recent equity market volatility. On Thursday, the S&P 500 posted its biggest one-day drop since April, a selloff that was followed by a 1 percent rally on Friday.

Israeli jets, tanks and artillery pounded Gaza again as the death toll from a two-week conflict topped 500 amid growing international calls for a ceasefire. Fighters from Hamas, which controls Gaza, have repeatedly tried to infiltrate Israel over the past week through hidden tunnels.

Fighting had flared in the Ukrainian city of Donetsk as investigators began to inspect the bodies. The United States and its allies have pointed the finger at pro-Russian rebels and at Moscow itself over the downing of the plane with 298 people aboard. Russia has denied involvement and blamed the Ukrainian military.

The United States and the European Union announced further economic sanctions against Russian interests last week before the Malaysian Airlines jet was shot down, and sanctions could become even more stringent.

"We're certainly paying attention to the issues abroad, but right now, they don't seem like the kind of events that will have anything beyond a short-term impact," said John Chisholm, chief investment officer at Acadian Asset Management in Boston. "We expect these uncertainties to be reversed in two or three weeks."

The Dow Jones industrial average fell 31.85 points or 0.19 percent, to 17,068.33. The S&P 500 lost 3.46 points or 0.17 percent, to 1,974.76. The Nasdaq Composite dropped 1.65 points or 0.04 percent, to 4,430.49.

The CBOE Volatility Index gained 4.8 percent to 12.64, a level that is well below its historical average of 20. Some analysts have suggested that the low volatility has left the market - which hasn't had a correction, defined as a 10 percent pullback, since October 2011 - vulnerable to a shock.

"Markets aren't particularly attractive, and it seems likely that we'll see a correction of 10 to 15 percent, though the timing on that is very difficult to say," Chisholm said.

In company news, Herbalife Ltd dropped 6.6 percent to $56.84 after Pershing Square's Bill Ackman, who is short the stock, told CNBC he would present evidence on Tuesday that the company is an "incredible fraud."

McDonald's Corp shares slid 1.3 perent to $97.69 and Yum Brands Inc shares fell 3.7 percent to $74.54 as the fast-food restaurant chains face a new food safety scare in China, denting efforts to shore up reputations hurt by a 2012 safety scandal.

(Reporting by Rodrigo Campos; Editing by Jeffrey Benkoe and Nick Zieminski)