* U.S. services sector growth fastest in 8-1/2 years -ISM
* Coach shares up after results, Target slides
* Indexes off: Dow 0.3 pct, S&P 0.3 pct, Nasdaq 0.1 pct (Updates to morning trading, adds data, comment)
By Rodrigo Campos
NEW YORK, Aug 5 (Reuters) - U.S. stocks fell on Tuesday, weighed by earnings such as Target's and a drop in energy shares, but indexes cut losses after strong U.S. data offset a weak reading in China's services sector.
Energy stocks posted the largest losses on the S&P 500, down 1.1 percent with crude oil prices down as increasing supply overshadowed political tensions.
Retailer Target cut its second-quarter earnings estimate due to higher promotions and discounts and its shares fell 2.6 percent to $59.10.
But new orders for U.S. factory goods rose more than expected in June as demand increased across the board, while a measure of growth in the services sector increased at the fastest rate in 8-1/2 years.
"If we work on the assumption that we are worried about the China demand story as their economic data came out this morning a bit softer, we really can't have it both ways if we see significant improvement both in factory orders and the ISM non-manufacturing in the U.S.," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
The data helped offset figures showing China's services purchasing managers' index fell to 50.0 in July, the lowest since data collection began in November 2005, from a 15-month high of 53.1 in June.
"We still think the backdrop for equities remains favorable," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
He said valuations are not extreme and investors looking for yield are finding few options in other assets, which puts a floor under equities.
The Dow Jones industrial average fell 46.22 points or 0.28 percent, to 16,523.06, the S&P 500 lost 4.97 points or 0.26 percent, to 1,934.02 and the Nasdaq Composite dropped 4.77 points or 0.11 percent, to 4,379.12.
Gannett Co shares gave up a 4 percent gain to trade slightly lower on the day. The publisher of USA Today said it would take full ownership of automotive website Cars.com and spin off its publishing assets into a publicly-traded company.
Coach shares added 4.3 percent to $35.79 after the high-end retailer reported better-than-expected quarterly revenue, helped by international markets.
Shares of solar and LED equipment maker GT Advanced Technologies rose 5.8 percent to $14.95 a day after it raised the lower end of its full-year 2014 adjusted profit forecast, citing higher gross margins for the second half of the year.
Online coupon company RetailMeNot shares tumbled 25.1 percent to $18.96 after it forecast quarterly revenue below analysts' average estimate. The stock earlier hit a record low of $18.52. (Reporting by Rodrigo Campos; additional reporting by Chuck Mikolajczak; Editing by Bernadette Baum and Nick Zieminski)