By Georgi Kantchev and Allison Prang 

The Dow Jones Industrial Average fell Monday as escalating trade tensions between the U.S. and China weighed on investors' appetite for risk.

Last week's back-and-forth over tariffs exacerbated worries among investors that the world's two biggest economies could descend into a trade war.

Concerns about the fate of the North American Free Trade Agreement and tariffs that the Trump administration imposed on European allies also are adding to investor anxiety.

"Trade continues to weigh on the market, and the China tariffs are a big deal," said Lindsey Bell, investment strategist at CFRA Research. "It could get worse before it gets better."

The blue-chip index fell 103.01 points, or 0.4%, to 24987.47. The S&P 500 dropped 5.79 points, or 0.2%, to 2773.87, while the Nasdaq Composite rose 0.65 point, or less than 0.1%, to 7747.03.

Many investors still expect the U.S. and China to continue talking, and so far the repercussions for global growth are seen as limited. Analysts at Deutsche Bank estimate the impact of the announced U.S. tariffs on China's economy would be less than 0.1% of China's gross domestic product this year.

However, if the U.S. imposes additional tariffs, as Mr. Trump has threatened, the impact would rise to 0.3%, according to the bank.

Kristina Hooper, chief global strategist for Invesco, said trade is a concern for markets but also noted stocks have an "upward bias." The Federal Reserve's hawkish stance last week, however, could affect that, she said.

It's "not just an increase in rate-hike expectations, but it's also an increase in balance-sheet normalization," she said. "It's getting more significant."

Investors need to diversify their portfolios to protect against downturns, she said.

Some investors advised against reading too much into summer moves. Linda Duessel, senior equity strategist for Federated Investors, said "the market is just doing its summertime thing" and that it "lacks catalysts." Years with midterm elections also tend to be "sloppy" until the fourth quarter.

"It's taking a pause on its way to break through the highs and for very likely a strong year-end," she said.

Shares of energy companies in the S&P 500 stood out Monday, adding 1.1% -- the most of the index's 11 sectors -- as oil prices climbed.

U.S. crude oil rose 1.2% to $65.85 a barrel as investors awaited a key producer meeting between the Organization of the Petroleum Exporting Countries and other major suppliers later this week.

The S&P 500's telecommunications sector -- a group of three companies -- dropped 2%, driven by a decline in AT&T shares of 96 cents, or 2.9%, to $32.19. The company completed its deal to buy Time Warner last week, after it won a court battle with the Justice Department, which wanted to stop the deal.

Outside of the U.S., both the Stoxx Europe 600 and Nikkei Stock Average closed down 0.8%.

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

June 18, 2018 17:14 ET (21:14 GMT)