(Updates to early morning)
NEW YORK, March 18 (Reuters) - Stocks slipped in early morning on Tuesday, easing off a powerful rally of more than 3 percent a day earlier, as investors opted for caution ahead of a U.S. military strike against Iraq that could come soon.
Many investors believe a war would end quickly, but nagging concerns remain that the conflict could offer unwelcome surprises.
In addition, a government report before the open showing a steep drop in U.S. housing starts last month also dampened sentiment and raised concerns over the economy's health.
"Everything's got to go right for the market to keep rallying," said Todd Leone, head of listed trading at S.G. Cowen. "But I think everyone realizes the economy's still weak. I think the market is going to take a rest."
The blue-chip Dow Jones industrial average fell 36 points or 0.45 percent to 8,104. The broad Standard and Poor's 500 lost 4 points, or 0.53 percent, to 858. The tech-laced Nasdaq Composite Index dropped 10 points, or 0.75 percent, to 1,381. The major market gauges had soared more than 3 percent on Monday.
Oil prices skidded as war appeared almost a certainty, weighing on oil stocks. Exxon Mobil Corp. , the world's largest publicly traded oil company, fell 34 cents to $34.71. ChevronTexaco lost 34 cents to $64.37. Independent oil and gas producer Apache Corp. fell $1.10 to $58.66. (With additional reporting by Vivian Chu)