* Apple falls on concerns over waning iPhone demand
* Technology sector leads losses
* FANG shares also lose ground
* Indexes down: Dow 1.6 pct, S&P 1.7 pct, Nasdaq 3 pct (Updates to close)
By Caroline Valetkevitch
NEW YORK, Nov 19 (Reuters) - U.S. stocks dropped and the Nasdaq fell 3 percent on Monday as investors dumped Apple, internet and other technology shares, further shaking confidence in a group of stocks that has propelled the long bull market.
Conflicting signals over the state of play between the United States and China on their trade dispute added to caution in the market.
Shares of Apple Inc fell after the Wall Street Journal reported the company had cut production orders in recent weeks for all three iPhone models launched in September.
The iPhone maker's stock dropped 4.0 percent to $185.86 and is now down 19.9 percent from its Oct. 3 record closing high in the wake of a disappointing holiday quarter sales forecast and weak outlooks from several suppliers. The S&P 500 technology index, down 3.8 percent, led sector losses.
Other market leaders - including the 'FANG' stocks - also fell sharply. Shares of Facebook were down 5.7 percent, Amazon.com was down 5.1 percent, Netflix fell 5.5 percent and Alphabet fell 3.8 percent.
Since the FANG outperformance run peaked on Aug. 30, the group has underperformed the S&P 500 by 16.25 percent. That is their worst underperformance since the first half of 2014, when they underperformed by around 20 percent.
"You're seeing that rotation away from tech. Certainly the indexes are much more growth-oriented because of the sheer size of those companies now, and they dominate the indexes," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "You're going to have more underperformance of the growth names."
The S&P utilities and real estate sectors were the only two that ended in positive territory.
The Dow Jones Industrial Average fell 395.78 points, or 1.56 percent, to 25,017.44, the S&P 500 lost 45.54 points, or 1.66 percent, to 2,690.73 and the Nasdaq Composite dropped 219.40 points, or 3.03 percent, to 7,028.48.
Comments by New York Federal Reserve President John Williams on Monday that the U.S. central bank is pushing ahead with gradual rate-hike plans next month as it marches toward a more normal policy stance may have added pressure to stocks.
Some investors questioned whether the Fed will be able to continue raising interest rates, possibly harming growth.
Richard Clarida, the Fed's newly appointed vice chair, said on Friday that U.S. rates are nearing Fed estimates of a neutral rate, which "makes sense."
Over the weekend, Asia-Pacific leaders meeting in Papua New Guinea failed to agree on a communique for the first time, with U.S.-China trade worries on the forefront.
U.S. Vice President Mike Pence said in a blunt speech on Saturday the United States will not back down from its trade dispute with China unless Beijing bows to U.S. demands, dampening Friday's trade optimism that was fueled by comments from President Donald Trump.
Shares of Apple suppliers were also hit, including Lumentum Holdings Inc, Universal Display Corp, Cirrus Logic Inc and Skyworks Solutions Inc.
The Philadelphia SE Semiconductor index, which includes some Apple suppliers, dropped 3.9 percent, extending losses from the previous session.
"Lots of times we get a rally started the Friday after Thanksgiving, which is this week. If some of these dominos fall on the positive side, we could see this trend reverse," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
"But right now there are several things working against the market - the Fed, the uncertainty with regard to the trade deal with China and some sector disappointments, particularly in technology."
Trading volumes were thin at the start of the holiday-shortened week ahead of Thanksgiving on Thursday and a shorter session on Friday, which brings slight volatility to markets, traders said.
About 7.7 billion shares changed hands on U.S. exchanges. That compares with the 8.7 billion daily average for the past 20 trading days.
Declining issues outnumbered advancing ones on the NYSE by a 2.72-to-1 ratio; on Nasdaq, a 2.94-to-1 ratio favored decliners.
The S&P 500 posted 28 new 52-week highs and 18 new lows; the Nasdaq Composite recorded 17 new highs and 159 new lows. (Additional reporting by Medha Singh and Sruthi shankar in Bengaluru, Karen Brettell and Jennifer Ablan in New York; Editing by James Dalgleish and Dan Grebler)