US STOCKS-Wall St falls on dollar climb, China move

* Dollar firms on short covering

* King Pharma soars on Pfizer takeover deal

* Fed minutes due at 2 p.m. EDT

* Indexes off: Dow 0.5 pct, S&P 0.4 pct, Nasdaq 0.2 pct

* For up-to-the-minute market news see [STXNEWS/US] (Updates to open)

By Chuck Mikolajczak

NEW YORK, Oct 12 (Reuters) - U.S. stocks dropped on Tuesday as China's bid to cool down the world's second biggest economy sparked concerns it would crimp global growth and as the dollar rebounded.

An official Chinese newspaper reported the government raised bank reserve requirements by 50 basis points, the fourth hike this year, due to excessive lending. The report confirmed a Reuters story on Monday [ID:nTOE69A05I] and [ID:nTOE69A03Y]

"Right now, people are relying on China as the engine of growth for the world economy, and the Chinese leadership is concerned about their economy overheating, and they are taking steps to try and cool it," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

"But you are seeing more and more of that. The U.S. equity market is reacting to movements in foreign markets to a degree that I've never seen before."

The Dow Jones industrial average <.DJI> dropped 56.54 points, or 0.51 percent, to 10,953.80. The Standard & Poor's 500 Index <.SPX> fell 4.57 points, or 0.39 percent, to 1,160.75. The Nasdaq Composite Index <.IXIC> lost 4.58 points, or 0.19 percent, to 2,397.75.

The dollar rose against the euro and a basket of currencies on a short-covering bounce ahead of the release of minutes from the U.S. Federal Open Market Committee meeting on Sept. 21. The dollar index <.DXY> was up 0.3 percent. [ID:nLDE69B1F0]

The prospect of the Federal Reserve buying more long-term securities such as government bonds has created an inverse correlation between the dollar and equities, with investors using the greenback as a trigger to move into or out of stocks. For details, see [ID:nLDE69B0OQ]

The Fed, which is set to release the minutes at 2 p.m. EDT (1800 GMT), said after its September meeting it stood prepared to provide more support for the economy but expressed concern about low inflation.

Pfizer Inc , the world's biggest drugmaker, agreed to buy King Pharmaceuticals Inc for $3.6 billion. King surged 39.4 percent to $14.15 while Pfizer shed 0.6 percent to $17.30. [ID:nN12164348]

Avon Products Inc jumped 2.2 percent to $33.90 after a British newspaper reported French cosmetics company L'Oreal may want to buy Avon. [ID:nN12162453]

As earnings season picks up steam, results are expected later from chipmaker Intel Corp and railroad operator CSX Corp . (Editing by Jeffrey Benkoe)