US STOCKS-Wall St falls on China demand concerns

* Indexes off: Dow 0.35 pct, S&P 0.68 pct, Nasdaq 1.14 pct

By Chuck Mikolajczak

NEW YORK, Sept 22 (Reuters) - U.S. stocks were trading lower heading towards midday on Monday after China's finance minister indicated the country will not increase stimulus measures and U.S. housing data fell short of expectations.

Recent data in China has been weak, leading many analysts to lower their growth forecasts and hope for more aggressive accommodations from the government. In remarks on Sunday, Finance Minister Lou Jiwei said China wouldn't dramatically alter its economic policy because of any one economic indicator.

A closely watched gauge of Chinese manufacturing, due on Tuesday, could indicate activity was contracting.

"The China demand story is a new variation of a story we've been worried about for a few months. We get some critical data on it tonight for tomorrow morning," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

The National Association of Realtors said U.S. existing home sales dropped 1.8 percent to an annual rate of 5.05 million units, following four straight months of gains. Expectations called for sales increasing to a 5.20 million-unit pace. The PHLX housing sector index was down 1.4 percent.

The Dow Jones industrial average was falling 61.28 points, or 0.35 percent, to 17,218.46, the S&P 500 was losing 13.7 points, or 0.68 percent, to 1,996.7 and the Nasdaq Composite was dropping 52.01 points, or 1.14 percent, to 4,527.78.

In the latest round of merger activity, Sigma-Aldrich shares were up 33.5 percent to $136.62 as the best performer on the S&P 500 after German drugs and chemicals maker Merck KGaA (Other OTC: MKGAF - news) agreed to acquire Sigma-Aldrich for $17 billion in cash to boost its life science business.

Yahoo (NasdaqGS: YHOO - news) shares were trading down 5.5 percent to $38.69. The stock was downgraded by Bank of America Merrill Lynch and by Bernstein in the wake of the Alibaba Group debut Friday. Alibaba shares were down 3.2 percent to $90.90.

Dresser-Rand shares were up 2.6 percent to $81.99 after Germany's Siemens agreed to buy the U.S. oilfield equipment maker for $7.6 billion in cash. The stock had rallied more than 17 percent last week in anticipation of the deal.

Among the largest percentage gainers on the New York Stock Exchange was Kemet (NYSE: KEM - news) , up 11.9 percent after its second-quarter outlook, while the largest percentage decliner was CARBO Ceramics (NYSE: CRR - news) , down 18.86 percent.

Among the most active stocks on the NYSE were Alibaba , down 4.04 percent to $90.10; Bank Of America, up 0.91 percent to $17.10 and Vale SA ADR, down 4.48 percent to $11.46.

On the Nasdaq, Yahoo, Apple (NasdaqGS: AAPL - news) , up 0.3 percent to $101.23 and Chinanet Online (NasdaqCM: CNET - news) , up 75.0 percent to $3.43 were among the most actively traded.

Declining issues were outnumbering advancing ones on the NYSE by 2,467 to 474, for a 5.20-to-1 ratio on the downside; on the Nasdaq, 2,164 issues were falling and 483 advancing for a 4.48-to-1 ratio favoring decliners.

The benchmark S&P 500 index was posting 10 new 52-week highs and 10 new lows; the Nasdaq Composite was recording 23 new highs and 102 new lows. (Editing by Nick Zieminski)