Wall St. slips after two-day rally; energy shares drop

NEW YORK (Reuters) - U.S. stocks ended lower on Tuesday, snapping a two-day rally as energy shares tumbled on sliding oil prices. The pullback occurred on light volume typical of mid-August.

Traders rushed to sell the stock of handbag and accessory maker and retailer Kate Spade & Co , which plummeted 25.4 percent to close at $29.00 in its busiest day of trading ever with 52 million shares changing hands. Kate Spade & Co reported better-than-expected sales, which had helped lift the stock to a seven-year-high at $42.87 in early trading. The stock reversed course, though, after the company warned that gross margins would be weaker than expected for the year.

The S&P 500 energy sector index <.SPNY> ended down 0.7 percent in sync with the drop in oil prices. Southwestern Energy Co shares fell 2.8 percent to $38.21, while Consol Energy Inc shares ended down 2.4 percent at $39.49. The two stocks were the biggest losers in the S&P energy index.

Brent crude fell to a 13-month low due to worries about oversupply, even with possible disruptions to Iraq's production at the forefront. U.S. September crude also settled lower.

Forest Oil Corp and Comstock Resources Inc were the S&P 500's two biggest percentage losers, with Forest Oil's shares down 8.5 percent at $1.83 and Comstock Resources shares down 5 percent at $23.56.

Sixteen of the 30 Dow components also fell, including Chevron Corp , down 0.5 percent at $127.09.

The Dow Jones industrial average <.DJI> fell 9.44 points, or 0.06 percent, to close at 16,560.54. The S&P 500 <.SPX> ended down 3.17 points, or 0.16 percent, at 1,933.75. The Nasdaq Composite <.IXIC> lost 12.08 points, or 0.27 percent, to finish at 4,389.25.

About 4.3 billion shares traded on all U.S. platforms, according to BATS exchange data, compared with the five-day average of 6.0 billion.

Investors kept an eye on Russia, which sent a convoy of 280 trucks carrying humanitarian aid to eastern Ukraine on Tuesday. Western officials had been wary of the gesture, fearing Russia would use a humanitarian mission as a cover for invading Ukraine. The Russian Foreign Ministry said it would hand off the convoy to the Red Cross after crossing the border.

"This is another lull in the market. With earnings season basically done and people on vacation, any little bit of news will move the market," said Malcolm Polley, president and chief investment officer of Stewart Capital Advisors in Indiana, Pennsylvania.

"We already know the Middle East is unstable and that Russia is sending an aid convoy to Ukraine, so this is all the continuation of a longer-term issue that has been boiling for a long time."

In Iraq, the United States ruled out sending combat forces but said it would consider "additional political, economic and security options" to help its new prime minister-designate make the transition into office.

The U.S.-listed shares of Canadian biotech company Tekmira Pharmaceuticals Corp , which is developing a treatment for the often fatal Ebola virus disease, slid 21.8 percent to $18.61. The stock's decline on heavy volume followed a recent rally. The World Health Organization said it backed the use of experimental Ebola drugs to treat the outbreak in West Africa.

(Editing by Nick Zieminski and Jan Paschal)

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