* All major S&P 500 sectors in the red
* Fear gauge VIX registers largest gain since early November
* Indexes down: Dow 0.88 pct, S&P 0.88 pct, Nasdaq 1 pct
By Rodrigo Campos
NEW YORK, Jan 30 (Reuters) - The S&P 500 and the Dow were set to post their largest drop in more than three months on Monday as investors worried that a curb on immigration ordered by Donald Trump was a reminder that some of the U.S. president's policies are not market-friendly.
An executive order issued by Trump on Friday banned immigration from seven Muslim-majority countries, including legal residents and visa holders, and temporarily halted the entry of refugees. Over the weekend, thousands of people rallied in major U.S. cities and at airports in protest.
U.S. equities had hit a series of record highs following Trump's election in November, encouraged by his promise of tax cuts and simpler regulations. However, the potential risk from some of Trump's policies have dampened enthusiasm.
"Investors focused on the pro-growth of (Trump's) proposals and not those detrimental to economic activity, like protectionism," said Peter Cardillo, chief market economist at First Standard Financial in New York.
He said investors wore blinders to only see the market-friendly policies Trump spoke about during the campaign and the immigration ban was a reminder of actions he could take that could undermine the economy.
Technology, a sector which has openly opposed bans on immigration and hurdles to hiring foreign talent, weighed the most on the S&P 500.
The Dow Jones Industrial Average fell 176.47 points, or 0.88 percent, to 19,917.31, the S&P 500 lost 20.22 points, or 0.88 percent, to 2,274.47 and the Nasdaq Composite dropped 57.99 points, or 1.02 percent, to 5,602.79.
The Dow, which rose nearly 10 percent in the month after Trump's election, has gained 1 percent after his Jan. 20 inauguration.
Trump also signed an executive order that would seek to pare back federal regulations by requiring agencies to cut two existing regulations for every new rule introduced.
However, the Russel 2000 index of small and mid-cap companies fell 1.3 percent, giving back all the month's gains.
The CBOE Volatility index or Wall Street's "fear gauge" rose 1.55 points, the most for any day since early November.
Airline stocks fell, with American Airlines down 4.9 percent and United Continental down 3.8 percent. At least one analyst cited worries over the travel ban to the United States.
"The concern is that (Trump's) travel ban starts to encompass more countries or that there are more stringent restrictions on travel to the U.S.," or other countries retaliate, said Stifel analyst Joseph DeNardi.
Delta, which suffered a systems outage that grounded almost 300 flights between Sunday and Monday, fell 4.1 percent.
Also on investor's crosshairs: a Federal Reserve's policy meeting that begins Tuesday, corporate earnings from key companies such as Apple and Facebook and a raft of economic data including Friday's crucial jobs report.
The S&P 500 posted 4 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 46 new highs and 38 new lows.
Reporting by Rodrigo Campos, aditional reporting by Lewis Krauskopf; Editing by Nick Zieminski