* Fed begins two-day meeting on Tuesday
* Drop in oil pulls down energy shares
* Investors eye valuations after recent rally
* Yahoo drops after agreeing to sell core assets to Verizon
* Indexes down: Dow 0.42 pct, S&P 0.30 pct, Nasdaq 0.05 pct (Updates to close)
By Noel Randewich
July 25 (Reuters) - U.S. stocks receded from record highs on Monday as oil weighed on energy shares and investors awaited an avalanche of quarterly reports.
Shares fell almost across the board, with energy stocks leading declines across 10 S&P 500 sectors and the consumer discretionary sector the lone gainer, helped by a 1.84-percent gain in Target.
The negative start to the week, which includes earnings from 190 S&P 500 companies as well as a Federal Reserve policy meeting, put the brakes on a 9-percent rally that started on June 27.
Oil fell to two-and-a-half month lows amid worries that a global glut of crude and refined products would be a drag on markets for some time.
The S&P energy index fell 1.99 percent, its deepest percentage decline since late June.
“Earnings have provided an extension to the rally over the past week but we’re a bit frothy,” said David Schiegoleit, managing director of investments for the Private Client Reserve of U.S. Bank. “We’re approaching extreme in terms of valuation. What we see is the market catching its breath a little.”
Earnings of S&P 500 companies are expected to fall 3.7 percent in the second quarter, compared with a 5-percent decline expected at the start of the earnings season, according to Thomson Reuters data.
The Dow Jones industrial average dipped 0.42 percent to end at 18,493.06 points and the S&P 500 lost 0.3 percent to 2,168.48.
The Nasdaq Composite edged down 0.05 percent to 5,097.63.
Trading volume was light. About 5.9 billion shares changed hands in U.S. exchanges, below the nearly 7 billion daily average over the past 20 sessions.
Apple shares fell 1.33 percent after BGC cut the stock to “sell” ahead of the company’s earnings report on Tuesday.
After the close, Gilead Sciences fell 3 percent and Sanmina fell 12.6 percent following their quarterly reports.
Cautious about pulling the trigger due to global uncertainty sparked by Britain’s vote to leave the European Union, Fed officials are not expected to raise interest rates at their meeting on Tuesday and Wednesday, but they may hint at when a hike is likely.
Yahoo’s shares fell 2.69 percent after agreeing to sell its core internet business to Verizon for $4.8 billion. Verizon’s shares fell 0.41 percent.
Declining issues outnumbered advancing ones on the NYSE by a 1.69-to-1 ratio; on Nasdaq, a 1.40-to-1 ratio favored decliners.
The S&P 500 posted 32 new 52-week highs and no new lows; the Nasdaq Composite recorded 92 new highs and 19 new lows.
Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Nick Zieminski