U.S. stocks slipped on Monday as a surprise interest rate hike from China's central bank over the weekend prompted investors, worried about demand, to sell equities.

China's central bank raised interest rates on Saturday for the second time in just over two months as it stepped up its battle to rein in stubbornly high inflation. The People's Bank of China said it will raise the benchmark lending rate by 25 basis points to 5.81 percent and lift the benchmark deposit rate by 25 basis points to 2.75 percent.

In the long run, this is going to be healthy for the Chinese economy, but the instinctive market reaction is that this is going to be bad for global demand, giving investors a reason to sell off equities, said Quincy Krosby, market strategist with Prudential Financial in Newark, New Jersey.

Trading volumes, already light for the holiday season, are expected to be even thinner as a winter blizzard moved across the northeastern United States on Monday. The storm and its aftermath disrupted air and rail travel and forced motorists to deal with blowing snow and icy roads after the busy Christmas weekend.

Volume usually picks up a bit after a long weekend but that is not going to be the case today with the snow storm. Nobody can get into their offices in the Northeast and basically there is really lack of anything going on Wall Street, said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

The Dow Jones industrial average was down 35.72 points, or 0.31 percent, at 11,537.77. The Standard & Poor's 500 Index was down 2.55 points, or 0.20 percent, at 1,254.22. The Nasdaq Composite Index was down 15.10 points, or 0.57 percent, at 2,650.50.

With no major economic data or corporate news scheduled for the day, many investors will closely watch airline stocks as travel has been severely disrupted and several airports in the Northeast region were shut.

U.S. Airways Group Inc shares were down 1 percent to $9.81.

In Europe, stocks were down about 0.8 percent with thin volumes as UK markets remained closed, and as China's latest rate hike prompted investors to cash in a little portion of the strong gains made in December.

U.S. egg supplier Cal-Maine Foods Inc reported a lower-than-expected quarterly profit, hurt by higher feed costs which the company said would remain a concern in fiscal 2011 as well. The stock was down 2.8 percent at $32.88.

(Editing by Padraic Cassidy)

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