Trader's Highlight

DJI-NEW YORK, July 26 (Reuters) - The stalemate in U.S. debt talks dragged down stocks for a second day on Tuesday, and light volume showed investors remained reluctant to make bets despite another round of healthy earnings.

Declining issues solidly outpaced advancing ones, even though major averages showed mostly modest declines.

A failure to raise the U.S. debt limit by an Aug. 2 deadline could roil markets and hurt the economy if the United States puts off paying bills. Democrats and Republicans continued to joust on Tuesday over which side's plan has the better chance of passage.

At the close, the Dow Jones industrial average .DJI was down 91.50 points, or 0.73 percent, at 12,501.30. The Standard & Poor's 500 Index .SPX was down 5.49 points, or 0.41 percent, at 1,331.94. The Nasdaq Composite Index .IXIC was down 2.84 points, or 0.10 percent, at 2,839.96.

NYMEX-NEW YORK, July 26 (Reuters) - U.S. crude oil futures rose on Tuesday as the dollar weakened, encouraging investors to buy riskier assets.

Technical support also spurred buying, helping push up oil futures. Trading volume was moderate as many investors awaited outcome of the stalemated debt talks in Washington.

On the New York Mercantile Exchange, September light sweet crude CLU1 for September delivery settled at $99.59 a barrel, gaining 39 cents, or 0.39 percent, trading from $97.76 to $100.62, the highest level since the June 10 intraday high of $102.15.

CBOT-SOYBEANS-Soybean futures on the Chicago Board of Trade ended higher, rebounding from Monday's fall on a drop in U.S. soy crop ratings and outlooks for hot and dry weather in the southern Midwest, traders said.

The U.S. Department of Agriculture late on Monday said 62 percent of the U.S. soybean crop was rated in good to excellent condition, down from 64 percent the previous week.

FCPO-KUALA LUMPUR, July 26 (Reuters) - Malaysian palm oil futures bounced back in light trade on Tuesday as investors bet on talk of slower production due to drier weather in major planting areas, although uncertainty about the global economy still weighed.

Output in major producing countries is expected to start slowing during the one-month fasting observance as many Muslim estate workers take a break for a key holiday, Eid Al-Fitr.

The benchmark crude palm oil contract KPOc3 on Bursa Malaysia Derivatives closed 0.6 percent, or 19 ringgit, higher to 3,119 ringgit ($1,049) per tonne.

Overall traded volume was almost halved to 12,932 lots of 25 tonnes each from the usual 25,000 lots.

REGIONAL EQUITIES-BANGKOK, July 26 (Reuters) - Major Southeast Asian stock markets were mostly higher on Tuesday as investors bought financial stocks and big caps at the start of the reporting season but caution prevailed, with the U.S. debt ceiling negotiations still in deadlock.

The positive outlook for the economy and corporate earnings in the region helped sentiment and strong buying sent stocks in Indonesia .JKSE 1.1 percent higher to a record high, with turnover double the 30-day average.

Others posted more limited gains in moderate volume, with Singapore .FTSTI edging up 0.5 percent to three-month highs and Malaysia .KLSE inching up 0.14 percent. Thai .SETI and Philippine shares .PSI erased early gains to end lower.

Investors were reluctant to chase the region much higher amid fears that squabbling U.S. politicians would not be able to agree on a debt ceiling deal in time to avoid a default.