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* New York, others challenge Trump over energy efficiency
* Bank stocks pull S&P 500 lower
* Trump has said Xi meeting to be "a very difficult one"
* Indexes down: Dow 0.34 pct, S&P 0.42 pct, Nasdaq 0.36 pct (Adds details, comments, updates prices)
By Yashaswini Swamynathan
April 3 (Reuters) - U.S. stocks reversed course to trade lower on Monday after New York and other states challenged the Trump administration for illegally blocking energy efficiency standards, casting further doubt on the new government's ability to push through planned reforms.
The move by a coalition of U.S. states and municipalities comes barely two weeks after President Donald Trump's administration had to pull legislation to overhaul the U.S. healthcare system.
Wall Street has rallied since Trump's election victory in November on promises that included tax cuts and looser regulations. But that rally has stalled of late as investors fret if these promises will be fulfilled given the recent the administration's recent setbacks.
Trump is also set to meet Chinese President Xi Jinping later this week in what the U.S. president has said would be "a very difficult one" as the United States could not risk massive trade deficits and job losses.
At 10:59 a.m. ET the Dow Jones Industrial Average was down 71.23 points, or 0.34 percent, at 20,591.99, the S&P 500 was down 10.01 points, or 0.42 percent, at 2,352.71 and the Nasdaq Composite was down 21.25 points, or 0.36 percent, at 5,890.49.
The CBOE Volatility index, known as Wall Street's 'fear gauge' was up at 13.15 points, on track to rise for the third straight trading day.
Seven of the major S&P 500 sectors were in the red, led by financials, which dropped 1.11 percent.
Investors also await the earnings season to justify lofty valuations. The S&P 500 is trading at about 18 times earnings estimates for the next 12 months, above its long-term average of 15.
"Valuations at present are reasonably full ... what we need to see for the balance of this year is for earnings to justify the valuations we have seen thus far," said Bill Northey, chief investment officer at Private Client Group of U.S. Bank.
Among stocks, Tesla's shares were up 2.7 percent at $286.06 after the electric carmaker said on Sunday its vehicle deliveries increased 69 percent in the first quarter.
However, General Motors dropped 3.1 percent and Ford declined 2.3 percent after the two automakers reported March sales.
Accenture slipped 2.3 percent to $117 after Goldman Sachs downgraded the stock to "sell" from "neutral".
Declining issues outnumbered advancers on the NYSE by 1,779 to 1,041, for a 1.71-to-1 ratio on the downside. On the Nasdaq, 1,849 issues fell and 841 advanced for a 2.20-to-1 ratio favoring decliners.
The S&P 500 index showed 17 new 52-week highs and 4 new lows, while the Nasdaq recorded 68 new highs and 15 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D'Souza)