US STOCKS-Wall St falls to session lows, Ukraine engages Russia

* Indexes cut gains, fall to session lows

* Ukraine engaged Russia armored column

* Dow down 0.4 pct, S&P down 0.3 pct, Nasdaq flat (Updates with latest news from Ukraine)

By Ryan Vlastelica

NEW YORK, Aug 15 (Reuters) - U.S. stocks fell to session lows on Friday, erasing earlier gains and dropping in heavy trading, as forces in Ukraine engaged a Russian armored column on Ukrainian soil.

A Ukrainian military spokesman said Ukrainian forces had tracked a Russian armored column after it crossed the border into Ukraine, and that after the engagement, "part of it no longer exists."

Investors have been concerned about the potential fallout to any escalation between the two countries, though recent signs of easing tensions had lifted equities throughout the week.

"If the reports are true that there is an exchange of arms between Russia and Ukraine, that is a setback in the recent calm. It is hard to know how serious this is, but any sustained upturn in violence could lead to a short-term setback," said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management.

"Still, so far it has not paid to get too defensive."

The Dow Jones industrial average fell 63.19 points or 0.38 percent, to 16,650.39, the S&P 500 lost 4.95 points or 0.25 percent, to 1,950.23 and the Nasdaq Composite dropped 1.97 points or 0.04 percent, to 4,451.04.

The S&P 500 at one point rose as much as 0.45 percent on Friday.

(Editing by Bernadette Baum)