* U.S. crude falls below $40/barrel for first time since mid-April
* SolarCity down after Tesla says to buy the company
* Exxon, Chevron biggest drags on S&P and Dow
* Dow down 0.27 pct, S&P down 0.21 pct, Nasdaq up 0.29 pct (Updates to early afternoon)
By Tanya Agrawal
Aug 1 (Reuters) - The S&P 500 and the Dow fell in early afternoon trading on Monday, dragged down by energy stocks as oil prices fell, while the Nasdaq was led higher by Apple and Alphabet.
The S&P, which had earlier hit a fresh intraday all-time high, has been on a record-setting rally - helped by largely positive data and strong earnings. The index touched an intraday high for the seventh time in July on Friday.
The S&P gained 3.6 percent in July - its best month since March - lifting its valuation well above historical levels.
Oil prices fell about 3.6 percent due to an increase in OPEC production and U.S. oil rig additions. U.S. crude fell below $40/barrel for the first time since mid-April.
Exxon and Chevron were down 3.1 percent and 2.7 percent, respectively. The stocks were the biggest drags on the S&P and Dow.
Apple's 1 percent rise provided the biggest boost to the three main indexes. The stock has gained more than 9 percent since reporting results last week.
Google-parent Alphabet was up nearly 2 percent at $805.67.
Tepid U.S. second-quarter GDP data on Friday, however, dimmed some of the optimism over the state of the economy.
"The economic data until last week had been pretty decent but since the GDP numbers came out, we're seeing holes in the argument that the second half of the year is going to be better," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
Data on Monday showed U.S. manufacturing activity slowed in July as orders fell broadly and construction spending dropped in June.
The chance of an interest rate hike by the end of the year fell to about 33 percent after the GDP numbers were released, according to CME Fedwatch, from about 50 percent early last week.
At 12:53 p.m. ET (1653 GMT), the S&P 500 was down 4.52 points, or 0.21 percent, at 2,169.08, after touching a fresh intraday record of 2,178.29 earlier in the session.
The index is trading near 17.4 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data.
"At these valuations, the market is desperate for a catalyst to move higher," said Hogan.
The Dow Jones industrial average was down 49.61 points, or 0.27 percent, at 18,382.63, while the Nasdaq Composite was up 14.95 points, or 0.29 percent, at 5,177.08.
Five of the 10 major S&P sectors were higher, with the health index's 0.54 percent rise leading the advancers.
Biogen's 5.1 percent rise provided the biggest boost to the sector.
SolarCity fell 6.1 percent to $25.07 after Tesla said the two companies had agreed to merge. Tesla was down 0.7 percent at $233.08.
Declining issues outnumbered advancing ones on the NYSE by 1,775 to 1,140. On the Nasdaq, 1,448 issues fell and 1,345 advanced.
The S&P 500 index showed 34 new 52-week highs and no new low, while the Nasdaq recorded 85 new highs and 18 new lows. (Reporting by Tanya Agrawal in Bengaluru; Editing by Anil D'Silva)