US STOCKS-Wall St pares some early losses as oil prices rally

(Refiles to corrects to "its" from "their" in paragraph 1)

* Inflation to likely rebound - Fed's Fischer

* Oil prices jump more than 5 pct

* Energy index on track for best 4-day gain in 7 years

* Phillips 66 (NYSE: PSX - news) up after Buffett discloses stake

* Indexes down: Dow 0.28 pct, S&P 0.34 pct, Nasdaq 0.21 pct

By Tanya Agrawal

Aug 31 (Reuters) - Wall Street pared some of its early losses in afternoon trading on Monday as energy stocks gained after oil prices rallied sharply.

Crude prices jumped after data indicated surprise cuts to U.S (Other OTC: UBGXF - news) . oil production and as OPEC said it was ready to talk to other producers about the recent drop in prices.

The S&P energy index reversed course and was up 1.05 percent - on track for its best four-day gain in seven years - boosted by ConocoPhillips (NYSE: COP - news) , Schlumberger (Hanover: SCL.HA - news) and Phillips 66.

Still, Wall Street was poised for its worst monthly drop in more than three years on worries about the health of China's economy and the timing of a U.S. interest rate hike.

All three major indexes slipped more than 1 percent early on Monday after weekend comments from Federal Reserve Vice Chairman Stanley Fischer appeared to keep the door open for a rate hike in September.

The No. 2 Fed official said U.S. inflation would likely rebound as pressure from the dollar fades, allowing the Fed to raise interest rates gradually.

Fischer's remarks at the global central banking conference in Jackson Hole, Wyoming suggest the Fed could look beyond a week of stock market turmoil brought on by fears that China's economy is faltering.

"We can still expect to see some significant drops in the market until we get some direction from the Fed regarding a rate increase," said John DeClue, chief investment officer of U.S. Bank Wealth Management.

"However, we still think there is a less than 50 percent chance of a rate hike in September because we're not really seeing a rise in inflation and unless we get an unbelievably strong jobs report this week, December still seems more likely."

Investors will be keeping a sharp eye on economic data again this week, especially the monthly jobs report on Friday, the last one before the Fed meets on Sept. 16-17.

The U.S. central bank has said it will raise rates only when it sees a sustained recovery in the economy. While the job market has improved steadily, inflation has remained below the central bank's 2 percent target for more than three years.

A decade of near-zero interest rates has helped the U.S. stock market stage a spectacular bull-run since the financial crisis.

But fears about the health of the Chinese economy buffeted global stock markets this month and pushed prices of oil and other commodities lower.

Wall Street closed flat on Friday after a tumultuous week in which the Dow shed more than 1,000 points at one point last Monday. The market subsequently rallied, posting its biggest two-day gain since the crisis.

At 13:08 ET (1708 GMT), the Dow Jones industrial average was down 46.3 points, or 0.28 percent, at 16,596.71, the S&P 500 was down 6.67 points, or 0.34 percent, at 1,982.2 and the Nasdaq Composite was down 10.21 points, or 0.21 percent, at 4,818.11.

Eight of the 10 major S&P sectors were lower with the utilities index's 2.06 percent fall leading the decliners.

CBOE Volatility index, known as Wall Street's "fear gauge", rose about 4.2 percent to 27.14 on Monday, above its long-term average of 20. It (Other OTC: ITGL - news) spiked to as much as 53.29 last week.

Twitter (Xetra: A1W6XZ - news) was up 5.1 percent at $28.21 after SunTrust Robinson (LSE: RBN.L - news) raised its rating to "buy" from "neutral".

Phillips 66 was up 3.5 percent at $79.97 after Warren Buffett's Berkshire Hathaway (Sao Paolo: BERK34.SA - news) disclosed a $4.48 billion stake in the oil refiner.

Declining issues outnumbered advancers on the NYSE by 1,525 to 1,467. On the Nasdaq, 1,443 issues rose and 1,290 fell.

The S&P 500 index showed one new 52-week high and two new lows, while the Nasdaq recorded 22 new highs and 15 new lows. (Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)