US STOCKS-Wall Street falls as energy drags; focus shifts to Fed meeting

By Medha Singh

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* Energy shares drop as oil prices slide

* Home Depot drops after Guggenheim downgrade

* Corning cuts forecast for display volumes; shares fall

* Indexes down: Dow 0.21%, S&P 0.03%, Nasdaq 0.04% (Updates to open)

By Medha Singh

Sept 17 (Reuters) - U.S. stocks edged lower on Tuesday as a drop in oil prices weighed on the energy sector, while investors stayed away from making big bets ahead of the Federal Reserve's two-day policy meeting, where it is widely expected to cut interest rates.

The energy index fell 1.59% and was the biggest drag on the benchmark S&P 500 index after sources told Reuters that Saudi Arabia was close to restoring 70% of the oil production lost after weekend attacks on its biggest refinery.

The sector recorded its best one-day surge since January on Monday.

The U.S. central bank concludes its policy meeting on Wednesday, with traders currently expecting a 65.8% chance of a quarter percentage point cut from the Fed this week, down from 88.8% on Friday, according to CME's FedWatch.

Rate-sensitive bank index was down 1% in anticipation of a reduction in borrowing costs.

"It's just typical trading on the vigil of a Fed meeting," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"We haven't seen any panic from what happened over the weekend. I think (the Fed) will stick with a quarter of a percentage point cut even after the Saudi attack."

Since the last interest rate cut in July, U.S. economic data has shown mixed signals about the domestic economy. While strong retail sales and wage growth have bolstered consumer confidence, a protracted U.S.-China trade war has weighed on manufacturing and business sentiment.

Latest data showed U.S. manufacturing output increased more than expected in August, rebounding from a drop in July.

At 10:04 a.m. ET, the Dow Jones Industrial Average was down 58.03 points, or 0.21%, at 27,018.79, the S&P 500 was down 1.03 points, or 0.03%, at 2,996.93. The Nasdaq Composite was down 3.29 points, or 0.04%, at 8,150.26.

Among stocks, Home Depot Inc dropped 1.6% after Guggenheim downgraded the home improvement chain's shares to "neutral" from "buy".

Corning Inc tumbled 7.8% after the Gorilla glass maker cut its current-quarter display volume forecast.

Kraft Heinz Co slipped 3.7% after the packaged food maker's second-largest investor, 3G Capital, sold over 25 million shares in open market at a discount.

Deputy-level trade talks between the United States and China are set to resume on Thursday, but any agreement between the two sides is expected to be a superficial fix at this stage.

Tariff concessions from both countries last week helped the benchmark S&P 500 come within 1% of its all-time high touched in July.

Declining issues outnumbered advancers for a 1.59-to-1 ratio on the NYSE and a 1.77-to-1 ratio on the Nasdaq.

The S&P index recorded six new 52-week highs and one new low, while the Nasdaq recorded 24 new highs and 10 new lows. (Reporting by Medha Singh and Shreyashi Sanyal in Bengaluru; Editing by Anil D'Silva)