US STOCKS-Wall Street drops as oil worries nag

                                
 (Updates to early afternoon, changes byline)
                                
 * Oil price weighs on consumer outlook
                                
 * Airlines, restaurants among sectors hit hardest
                                
 * Housing data shows mixed picture
                                
 By Kristina Cooke
                                
 NEW YORK, May 23 (Reuters) - U.S. stocks fell on Friday, as
worries about high oil prices hammered energy-sensitive sectors
and left investors on edge about inflation at the onset of a
long holiday weekend.
                                
 Economic bellwethers United Tech <UTX.N> and Caterpillar
<CAT.N> were among the top drags on the Dow.
                                
 General Motors' <GM.N> shares fell to a 26-year low after
the company said the just-ended strike at supplier American
Axle & Manufacturing Holdings Inc <AXL.N> and separate strikes
by the United Auto Workers at its own plants had reduced its
earnings by a total of $2.8 billion.
                                
 Worries about the impact of high oil prices pushed the
American Stock Exchange index of airline stocks <.XAL> down 4
percent. Shares of restaurant chains, also seen vulnerable,
were lower.
                                
 U.S. crude <CLc1> futures rose to $131.92. They pulled back
on Thursday but only after climbing to an intra-day record
$135.09 per barrel.
                                
 "Oil prices are what's driving us down again. As they just
continue to go higher and higher, that's putting pressure on
the economy, and as people think the economy is not going to do
so well, that's hurting stocks," said Giri Cherukuri, head
trader at OakBrook Investments LLC in Lisle, Illinois.
                                
 Since the start of the year oil prices have climbed by more
than 30 percent.
                                
 The Dow Jones industrial average <.DJI> fell 150.95 points,
or 1.20 percent, to 12,474.67. The Standard & Poor's 500 Index
<.SPX> was down 18.56 points, or 1.33 percent, at 1,375.79,
while the Nasdaq Composite Index <.IXIC> was down 24.07 points,
or 0.98 percent, at 2,440.51.
                                
 Data from a realtors group showed a decline in U.S.
existing home sales that was less than expected. But the report
gave a mixed picture, with inventories of unsold homes rising
10.5 percent last month.
                                
 Shares of American International Group Inc <AIG.N>, the
world's largest insurer, fell 2.5 percent to $36.87. Moody's
Investors Service cut the company's credit rating, citing
losses from its exposure to the U.S. mortgage market and credit
derivatives.
                                
 GM shares were down 5 percent at $17.50, while United
Technologies' shares fell 2.6 percent to $69.98 and Caterpillar
shares slid 1.5 percent to $81.02.
                                
  Restaurant Cheesecake Factory <CAKE.O> fell 5.8 percent to
$19.66 and Darden Restaurants <DRI.N>, the operator of the Red
Lobster chain, fell 3.7 percent to $31.99.
                                
 Takeover developments were a bright spot, as the Dow and
the Nasdaq were on track for their worst week in three months.
                                
 Belgian brewer InBev <INTB.BR> is working on a bid for U.S.
rival Anheuser-Busch Companies Inc <BUD.N>, according to a
source familiar with the situation. Shares of the brewer of
Budweiser beer were 7.3 percent higher at $56.39.
                                
 Trading volume was light. The bond market closed early at 2
p.m. (1800 GMT) before the Memorial Day holiday weekend.
 (Editing by Kenneth Barry)