* Oil eases from earlier highs
* Western Digital to buy Hitachi's hard disk operations
* Indexes down: Dow 0.4 pct, S&P 0.7 pct, Nasdaq 1.4 pct (Updates to late morning, changes byline)
By Caroline Valetkevitch
NEW YORK, March 7 (Reuters) - U.S. stocks fell on Monday, weighed down by a downgrade of the semiconductor sector and worries about the effect of higher oil prices on the economy, which is unlikely to change soon.
The doubts overshadowed enthusiasm about Monday's deal news.
Technology shares led losses, and an index of semiconductor shares was down 3 percent. Wells Fargo downgraded the sector, noting it has more than doubled over the past two years.
The semiconductor index is up 45 percent since the start of September, roughly when the market's recent rally began, while the broad S&P 500 rose about 25 percent in that period.
The conflict in Libya and concerns about unrest in the region threatening oil flows from other producers kept oil prices higher. Analysts said the trend of higher oil is likely to pressure stocks at least for the near term.
"There is disappointment that we could be dealing with oil over $100 per barrel for some time, and also we have got light volume thus far this session, so I think that is pressuring things as well," said David Lutz, managing director of trading, Stifel Nicolaus Capital Markets in Baltimore.
Volume was about 2.6 billion shares, slightly below average for late morning.
The Dow Jones industrial average was down 52.98 points, or 0.44 percent, at 12,116.90. The Standard & Poor's 500 Index was down 8.85 points, or 0.67 percent, at 1,312.30. The Nasdaq Composite Index was down 37.91 points, or 1.36 percent, at 2,746.76.
In deal news, Western Digital Corp jumped 15 percent to $34.50 as the world's No. 2 computer hard drive maker agreed to buy Hitachi Ltd's hard disk drive operations for about $4.3 billion in cash and stock.
Brent crude was last up 37 cents at $116.34 a barrel, while U.S. oil prices were above $105.
Citigroup raised its price forecasts for Brent and U.S. benchmark West Texas Intermediate crude for 2011 and 2012, citing a stronger-than-expected first quarter and a "fear premium" on threats of continued output disruptions.
Government forces struck at rebels in Libya's east and were reported attacking a town near Tripoli as concern grew over civilian suffering and a growing refugee exodus.
OPEC is contemplating holding an extraordinary meeting, Qatar's Energy Minister said, but he added there was no supply shortage in the market.
European Central Bank President Jean-Claude Trichet said the latest oil spike heightened a warning he made on inflationary pressures in January, but added that so far the global economy was set for relatively robust growth. (Additional reporting by Edward Krudy; Editing by Kenneth Barry)