"Higher crude oil prices have the potential to fuel more rate hikes because the spike is inflationary," said Evan Olsen, head of equity trading at Stephens Inc. in Little Rock. "The Fed is guarding against inflation, so the effect of a pause could be temporary, in terms of market sentiment."

The Dow Jones industrial average slipped 20.97 points, or 0.19 percent, to end at 11,219.38. The Standard & Poor's 500 Index declined 3.59 points, or 0.28 percent, to finish at 1,275.77. The Nasdaq Composite Index dropped 12.55 points, or 0.60 percent, to close at 2,072.50.

Shares of Altria, parent of Marlboro cigarette maker Philip Morris USA and Oreo cookie maker Kraft, fell 1 percent, or 80 cents, to $79.10 on the New York Stock Exchange. Altria was the biggest drag on the blue-chip Dow average and the second-heaviest weight on the broad S&P 500.

The jump in oil prices, caused by the shutdown of an Alaskan oil field, added to worries about slowing economic growth after Friday's weaker-than-expected July jobs data.

Surging crude prices gave energy stocks a boost. But shares of diversified manufacturers, including General Electric Co, and other companies, whose fortunes are closely tied to economic cycles, came under pressure.

OIL NEAR $77 WHIPS TRANSPORTS

The Dow Jones Transportation Average dropped 1.42 percent, pulled lower by Union Pacific Corp., parent of the biggest U.S. railroad, and FedEx. Shares of Union Pacific fell 3.4 percent, or $2.86, to $80.99, while FedEx shares dropped 1.3 percent, or $1.35, to $103.16. Both trade on the NYSE.

U.S. crude oil for September delivery jumped $2.22 to settle at $76.98 a barrel on the New York Mercantile Exchange following the shutdown of the Prudhoe Bay oil field in Alaska. BP cited extensive corrosion in the pipeline, and said it will not commit to a date for restarting the oil field.

"The higher the oil price goes, the more concern there's going to be about the effect on economic growth," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. "There's also uncertainty about what type of forward commentary you're likely to get from the Fed, taking into account factors like oil."

On Tuesday, the Federal Open Market Committee, the Fed's policy-making arm, is expected to hold interest rates steady after a two-year monetary tightening cycle that has lifted the Fed's benchmark federal funds rate from 1 percent to 5.25 percent in 17 quarter-point increases.

In Monday's regular trading, shares of Dow component GE fell 0.3 percent, or 11 cents, to $32.69 on the NYSE, while those of 3M Co., another diversified manufacturer, dropped 0.7 percent, or 45 cents, to $69.

APPLE FALLS, PRICELINE.COM FLIES LATE

On the Nasdaq, shares of Apple Computer Inc., lost 1.6 percent, or $1.09, to $67.21, following disappointment about not enough new product announcements from the maker of the iPod digital music player.

But energy shares rose along with the higher oil prices. Exxon Mobil Corp., the world's largest publicly traded oil company, rose 0.8 percent, or 54 cents, to $69.23 on the NYSE.

Exxon, which hit a lifetime high of $69.62 during the session, was the biggest advancer in both the blue-chip Dow average and the S&P 500. Chevron Corp. was the S&P 500's second-biggest gainer. Its stock rose 1.8 percent, or $1.17, to $66.83.

After the bell, shares of Priceline.com Inc. jumped 9.2 percent to $28.84 on the Inet electronic brokerage system after the online travel company reported higher second-quarter profit. In regular trading,Priceline.com shares closed unchanged on Nasdaq at $26.41.

Volume was moderate on the NYSE, where about 1.35 billion shares changed hands, below last year's daily average of 1.61 billion. On the Nasdaq, about 1.48 billion shares traded, below last year's daily average of 1.80 billion.

Decliners outnumbered advancers by a ratio of about 7 to 4 on the NYSE, while about two stocks fell for every one that rose on the Nasdaq.

"Minera Escondida reiterates it desire to maintain dialogue (with workers) and trusts the strike will be carried out in a responsible and legal form," the company said in a statement.

Workers at Escondida, which produces about 20 percent of Chile's copper and accounts for 2.5 percent of the country's gross domestic product, are demanding a new contract to replace a 2003 deal that was signed when copper prices were about a fifth of what they are now.

Local television showed union workers tossing rocks the size of basketballs onto the road leading to the mine in northern Chile to obstruct the potential entry of transports carrying replacement personnel.

Talks between the company and the union grew increasingly combative in recent weeks, with each accusing the other of not ceding ground in their demands.

Union President Luis Troncoso said there was no plan to halt the strike until the company improves its offer.

Workers say they have the support of other Chilean mining unions, and that their fight could influence the outcome of upcoming negotiations at Codelco, Chile's state copper miner and the world's largest producer of the red metal.

"I think we are fortifying the (national) union movement," Troncoso said.

BHP Billiton, the world's largest miner, owns 57.5 percent of the open-pit mine, while No. 2 Rio Tinto Ltd has a 30 percent stake.

While workers are demanding a large increase in salary and benefits that reflect soaring copper prices, the company seeks to protect itself from the next cyclical downturn in prices for the red metal.

Before the strike, Escondida was expected to produce close to 1.3 million tonnes of copper in 2006, about the same as it did in 2005. That is roughly 3,500 tonnes of copper a day.

Copper futures in New York opened lower Monday but prices received a slight boost as the Escondida strike started.

NOISY TACTICS

More than 2,000 union workers were to take part in the strike at Escondida after negotiations for a new wage contract failed even after government mediation.

Union Secretary Pedro Marin said the workers would also march in Antofagasta, the major city in the mining region, to press their demands for a better wage deal.

He expected to draw support from others who use the city as a base and work in other mines in the region.

Chile is the world's largest copper producer and host to many international miners.

Marin said the union planned to employ noisy tactics like the ones used by Chilean students in nationwide protests in June. Those strikes ended in sometimes violent clashes with police.

Nearly 1 million Chilean students took part in nationwide strikes in early June as they demanded more education funding in destructive marches in the capital Santiago.