* "Fiscal cliff" talks stalled until after holiday
* Equity markets to close early, light volume expected
* Technicals point to "Santa rally"
* Indexes off: Dow 0.3 pct, S&P 0.3 pct, Nasdaq 0.4 pct
(Updates to late morning)
NEW YORK, Dec 24 (Reuters) - U.S. stocks edged lower on
Monday as caution over the potential for volatility driven by
worries about the U.S. "fiscal cliff" dampened enthusiasm at the
start of a seasonally strong period for equities.
The S&P 500 index declined 0.9 percent on Friday, its
biggest drop in more than a month, as a Republican plan to avoid
the cliff - $600 billion in tax hikes and spending cuts that
could tip the U.S. economy into recession - failed to gain any
traction on Thursday night.
Sharp moves like that highlight how headlines from
Washington can whipsaw markets, especially during the thinly
traded period over the Christmas holidays.
Still, with the S&P 500 up 0.8 percent in December and on
course for its strongest month since September, some analysts
are predicting that stocks will find their footing during a
market seasonality known as the "Santa rally."
"Right now we've seen some very constructive action in the
market so I think that bodes well for this being a positive
seasonal 'Santa' period over the coming seven days," said Ari
Wald, a technical analyst at The PrinceRidge Group.
Wald points to an all-time high in the NYSE advance-decline
line, which compares the advancing and declining stocks, as
indication of strong participation in the rally off November
lows that is setting stocks up for their best year since 2009.
A large number of advancers to decliners shows there is broad
participation across the equity market.
"Pull backs are buying opportunities," said Wald. "There has
been really great participation on this move, a lot of small-
and mid-cap stocks behaving well, pushing out to the upside;
we're seeing some good leadership from offensive sectors of the
market as well."
The Santa seasonality covers the last five trading days of
the year and the first two of the new year. Since 1928, The S&P
500 has averaged a gain of 1.8 percent during this period and
risen 79 percent of the time, according to data from
PrinceRidge.
The Dow Jones industrial average dropped 35.78
points, or 0.27 percent, to 13,155.06. The Standard & Poor's 500
Index fell 3.69 points, or 0.26 percent, to 1,426.46. The
Nasdaq Composite Index lost 10.68 points, or 0.35
percent, to 3,010.33.
The S&P 500 remains up more than 13 percent for the year,
having recovered nearly all the losses suffered in the wake of
the U.S. elections. The yearly gain would be the best since
2009.
Some U.S. lawmakers expressed concern on Sunday the country
would go over the cliff, as some Republicans charged that was
President Barack Obama's goal. Talks are stalled with Obama and
House of Representatives Speaker John Boehner out of Washington
for the holidays.
"It does seem like we are continuing through the same drift
of the same thing we've had the past couple of weeks - cliff
talk," said Nick Scheumann, wealth partner at Hefty Wealth
Partners in Auburn, Indiana.
"You can't trade on what you don't know and we truly don't
know what they are going to do," he said.
Congress is expected to return to Washington next Thursday
as Obama returns from a trip to Hawaii. As the deadline draws
closer, a 'stop-gap' deal appears to be the most likely outcome
of any talks.
Trading volumes are expected to be muted, with U.S. equity
markets scheduled to close at 1 p.m. (1800 GMT) ahead of the
Christmas holiday on Tuesday.
In addition, a number of European markets will operate on a
shortened session, with other markets closed entirely.
U.S. retailers may not see a sales surge this weekend as
ho-hum discounts and fears about imminent tax hikes and cuts in
government spending give Americans fewer reasons to open their
wallets in the last few days before Christmas.
Aegerion Pharmaceuticals Inc said the U.S. Food and
Drug Administration approved Juxtapid capsules in patients with
homozygous familial hypercholesterolemia, but will conduct a
post-approval study to test long-term safety and efficacy.
Shares fell 4.7 percent to $24.50.
Herbalife Ltd dipped 5.8 percent to $25.68 in
premarket after the company said it expects to exceed its
previously announced repurchase authorization guidance and has
retained Moelis & Company as its strategic advisor. The declines
put the stock on track for a ninth straight decline.
Yum Brands Inc advanced 1.7 percent to $64.98 after
Shanghai's food safety authority said the level of antibiotics
and steroids in the company's KFC chicken was within official
limits.
(Reporting By Edward Krudy; Editing by Chizu Nomiyama)