In the lightest volume session of the year, U.S. stocks fell on Monday after a lowered outlook from Kimberly-Clark increased concerns about higher commodity costs squeezing profits in coming quarters.

About 5.4 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the daily average of 7.74 billion.

Kimberly-Clark fell 2.7 percent to $64.24 after it cut the low end of its full-year outlook because the costs of pulp and other goods rose more than twice as much as it had expected.

The threat of rising commodity costs will remain in the spotlight for one of the busiest weeks of earnings, with 180 S&P 500 companies set to report this week, including other major consumer names like Procter & Gamble

and Colgate-Palmolive .

That is going to be the next thing that happens -- the forward guidance is going to start to become impacted because of higher prices, said Ken Polcari, managing director of ICAP Equities in New York.

This non-existent inflation that (the Federal Reserve) keeps talking about is elusive, because there clearly is much more inflation than they care to admit at the moment.

Kimberly-Clark, maker of Kleenex tissue and Huggies disposable diapers, is among companies highly vulnerable to rising commodity costs because its products contain oil-based materials and paper.

The Dow Jones industrial average <.DJI> dropped 26.11 points, or 0.21 percent, to end at 12,479.88. The Standard & Poor's 500 Index <.SPX> shed 2.13 points, or 0.16 percent, to 1,335.25. But the Nasdaq Composite Index <.IXIC> gained 5.72 points, or 0.20 percent, to close at 2,825.88.

Johnson Controls Inc fell 2.8 percent to $39.60 after the company, one of the world's largest auto suppliers, said its fiscal third-quarter results would be hit by a drop in car production following Japan's massive earthquake last month. [ID:nN25139917] Japan's earthquake has disrupted the supply of auto parts and forced auto companies to idle plants.

Through Monday, 75 percent of the 151 companies in the S&P 500 that have reported results have beaten analysts' expectations. That is just above the average over the past four quarters but well above the average of 62 percent since 1994, according to Thomson Reuters data.

The Nasdaq edged higher, boosted by SanDisk Corp , up 1.6 percent at $49.78 after raising its 2011 margin outlook late on Thursday.

But energy and materials companies' shares ranked among the worst performers, with the PHLX oil service sector index <.OSX> off 0.9 percent and the S&P Materials Index <.GSPM> down 0.7 percent. Oil prices slipped in thin, choppy trade as a sell-off in silver from near record highs lifted the dollar off its lows, prompting a bout of profit taking in crude.

The CBOE Volatility Index <.VIX> rose 7.4 percent after falling last week to its lowest level since 2007.

NETFLIX FALLS LATE

After the closing bell, Netflix Inc fell 4.5 percent to $240.44 after the video rental company reported better-than-expected profit and revenue, but issued an outlook for the second quarter that disappointed investors.

This week is another hectic one for earnings, including Amazon.com , Coca-Cola Co , Microsoft Corp along with a host of energy companies such as Exxon Mobil Corp and Chevron Corp .

Regarding expectations for this week's batch of energy companies' earnings, Polcari added: They are all projected to be better because of high oil prices and all that stuff -- great for them, but not good for anyone else.

The week's agenda includes a two-day meeting of the U.S. Federal Reserve's policymaking committee on Tuesday and Wednesday. Fed Chairman Ben Bernanke will hold the first of four annual press conferences on Wednesday after the Federal Open Market Committee's meeting ends.

Investors will look for clues about the direction of monetary policy when the Fed's bond buying program ends in June.

Declining stocks outnumbered advancing ones on the NYSE by 1,640 to 1,379, while on the Nasdaq, decliners beat advancers by 1,401 to 1,185.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

Inflation