US STOCKS-Wall St dip led by utilities, factory activity slows

* Indexes fall after early rally

* Sept factory activity down in US, China

* Oil prices fall 0.78 pct, reversing energy rally

* Dunkin falls after weak full-year forecast

* Indexes down: Dow 0.52 pct, S&P 0.29 pct, Nasdaq (NasdaqGS: NDAQ - news) 0.53 pct (Updates to late afternoon, adds commentary, changes byline)

By Sinead Carew

Oct (HKSE: 3366-OL.HK - news) 1 (Reuters) - Wall Street started the last quarter of the year in the red in a choppy trading session as investors fled utilities and telecoms while they parsed mixed U.S (Other OTC: UBGXF - news) . data.

After starting the day with a brief rally, stocks fell throughout the morning, then pared losses on Thursday afternoon. But the three major U.S. indexes were still in negative territory later in the session.

Oil prices settled down on Thursday after altered forecasts for the path of hurricane Joaquin snuffed out an early rally. Fears the storm could damage U.S. East Coast oil installations lifted energy stocks, but they were well off their highs.

"There is a litany of reasons why people are more comfortable being out of the market," said Peter Kenny, equity market strategist at Kenny & Co LLC, in Denver. He cited concern over global growth, third quarter earnings, crude oil prices, geo-political issues and a lack of inflation.

"We'll reach an exhaustion selloff in the fourth quarter, then you'll see a reflex rally," Kenny added.

Data on Thursday showed that the pace of growth at U.S. factories slowed in September, but new jobless claims pointed to a tightening labor market.

Earlier in the day, data from China showed factory activity fell again, but not as much as feared.

Mixed data could complicate the Federal Reserve's plans to raise interest rates this year. Crucial non-farm payroll numbers are due on Friday.

The Dow Jones industrial average fell 41.79 points, or 0.26 percent, to 16,242.91, the S&P 500 lost 0.27 points, or 0.01 percent, to 1,919.76 and the Nasdaq Composite dropped 8.52 points, or 0.18 percent, to 4,611.64.

The utilities index's 2.6 percent fall led the decliners, followed by a 1.2 percent decline for telecommunications services. Both are defensive sectors, which are sensitive to interest rate increases.

Wall Street had rallied on Wednesday as investors bought beaten-down stocks, with biotechs rising for a second day after a recent bout of sustained selling.

"Yesterday's sell-up was in a vacuum. There is still a sell bias and the unrest around Syria and Russia are also weighing," said Andrew Frankel, co-president of brokerage firm Stuart Frankel & Co in New York.

Shares (Berlin: DI6.BE - news) of Twitter (Xetra: A1W6XZ - news) were down 7.4 percent at $24.94, a day after on a report that co-founder and interim Chief Executive Jack Dorsey was expected to be named permanent CEO.

Dunkin Brands sank 11.6 percent to $43.31 after company gave weak full-year forecast and said it would shut 100 stores.

Declining issues outnumbered advancing ones on the NYSE by 1,733 to 1,262, for a 1.37-to-1 ratio; on the Nasdaq, 1,774 issues fell and 952 advanced for a 1.86-to-1 ratio favoring decliners.

The S&P 500 posted 4 new 52-week highs and 27 lows; the Nasdaq recorded 13 new highs and 169 lows. (Additional reporting by Abhiram Nandakumar and Tanya Agrawal in Bengaluru; Editing by Saumyadeb Chakrabarty)