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* Fed's rate-setting meeting under way
* Trump fires new warning at China
* Merck, P&G rise on quarterly profit beats
* Under Armour slides on N.America rev forecast cut
* Indexes off: Dow 0.25%, S&P 500 0.34%, Nasdaq 0.47% (Updates to open)
By Shreyashi Sanyal
July 30 (Reuters) - U.S. stocks dropped on Tuesday as U.S.-China trade worries pressured technology shares, while the scale of consensus at the Federal Reserve in favor of deeper cuts in interest rates ate into optimism that drove markets to record highs last week.
The S&P 500 technology sector fell 0.62%, with Apple Inc's 0.84% drop weighing the most on the index.
The iPhone maker's report after hours will provide a clear gauge on the impact of trade tensions with China, coming on the heels of renewed trade talks and as President Donald Trump warned Beijing against trying to wait out his first term in office to finalize a trade deal.
Wall Street's main indexes have had a slow start to the week, retreating on Monday, and participants are bracing for what message the Fed will send if it pushes ahead with a well-telegraphed move to ease policy that has driven stocks higher since May.
With a quarter-percentage-point cut in rates fully priced-in, investors will watch for how Fed Chairman Jerome Powell manages debate about whether the stimulus is necessary and what that says about the attitude of the U.S. central bank to doing more in the months ahead.
"I think the Fed is going to leave the door open for further rate cuts even if they don't do 50 bps cut right now," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
Brown said concerns about trade policy and forward earnings growth are on the forefront.
Corporate earnings so far have been robust with nearly half of all S&P 500 companies reporting second-quarter results. More than 76% have beaten bottom line estimates, according to Refinitiv data.
Backing the case further for a reduction in borrowing costs was data from the Commerce Department that showed U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation.
Bank stocks, which tend to benefit from a rising interest rate environment, dropped 0.6%.
The Dow Jones Industrial Average fell 67.39 points, or 0.25%, to 27,153.96, the S&P 500 lost 10.28 points, or 0.34%, to 3,010.69. The Nasdaq Composite dropped 39.24 points, or 0.47%, to 8,254.09.
A 4.66% tumble in shares of Pfizer Inc a day after the drugmaker said it would spinoff its off-patent drugs unit with Mylan, weighed the most on the healthcare index .
Merck & Co Inc rose 2.24% after the drugmaker reported quarterly profit above expectations.
Procter & Gamble Co jumped 4.41% after the consumer goods maker beat estimates for quarterly revenue, boosted by price hikes and strong demand for its beauty products.
Under Armour Inc tumbled 15% after the sportswear maker cut its full-year revenue forecast for North America, its biggest market.
Declining issues outnumbered advancers for a 1.97-to-1 ratio on the NYSE and for a 1.99-to-1 ratio on the Nasdaq.
The S&P index recorded 18 new 52-week highs and one new low, while the Nasdaq recorded 21 new highs and 57 new lows. (Reporting by Shreyashi Sanyal and Medha Singh in Bengaluru; Editing by Patrick Graham and Arun Koyyur)