NEW YORK – Stocks fell Monday after Moody's Investors Service said the U.S. could eventually lose its top-notch credit rating.

Credit ratings agency Moody's said debt affordability is "most stretched" in the U.S. and Britain among countries with the top "AAA" rating. A drop in the credit rating could make it more expensive for the government to borrow money.

Meanwhile, a report showed manufacturing activity in New York has slowed slightly in March. The Empire State manufacturing index likely fell 22.9 from 24.9 in February. Economists had predicted a drop to 21.5.

A separate report found that industrial production unexpectedly rose in February. The Federal Reserve said industrial production rose 0.1 percent in February. Economists polled by Thomson Reuters had forecast a drop in activity from the nation's factories, mines and utilities. It was the eighth consecutive month of growth, showing the industry is recovering from the recession.

Beyond economic news, investors are awaiting details on a proposed overhaul of financial regulation. Sen. Chris Dodd, a Democrat from Connecticut and chairman of the Senate Banking Committee, is expected to present a bill Monday to remake bank rules.

In midmorning trading, the Dow Jones industrial average fell 18.29, or 0.2 percent, to 10,606.40. The Standard & Poor's 500 index dropped 0.26, or less than 0.1 percent, to 1,149.73, while the Nasdaq composite index fell 1.99, or 0.1 percent, to 2,365.67.

Stocks ended mixed Friday but posted strong gains for the week.

Bond prices mostly fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71 percent from 3.70 percent late Friday.

The dollar rose against other major currencies. Gold prices also rose.

Crude oil fell $1.44 to $79.80 per barrel on the New York Mercantile Exchange.

The drop in stocks comes as investors await the Fed's regular interest-rate committee meeting Tuesday. While it is unlikely to raise a key interest rate from historic lows, traders will be looking for clues in the Fed's statement as to when it might make a move.

Investors have been factoring in an eventual rate hike, but any signs that the move will be made sooner rather than later is likely to — at least in the short-term — hurt stocks.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 118.1 million shares, compared with 170.9 million shares traded at the same point Friday.

The Russell 2000 index of smaller companies fell 1.84, or 0.3 percent, to 674.75.

Overseas, Japan's Nikkei stock average rose less than 0.1 percent. Britain's FTSE 100 fell 0.1 percent, Germany's DAX index rose less than 0.1 percent, and France's CAC-40 fell 0.2 percent.

WASHINGTON – China retained its spot as the biggest foreign holder of U.S. Treasury debt in January although it trimmed its holdings for a third straight month. The string of declines are likely to underscore worries that the U.S. government could face much higher interest rates to finance soaring budget deficits.

The Treasury Department said that China's holdings dipped by $5.8 billion to $889 billion in January compared to December. Japan, the second largest foreign holder of U.S. government debt, also trimmed its holdings but by a much smaller $300 million to $765.4 billion.

Net foreign purchases of long-term securities, a category that includes both government and corporate debt, totaled $19.1 billion in January, as net purchases of private corporate bonds fell by $24.8 billion, the biggest drop on record.

WASHINGTON – The federal government said Monday it cannot explain a reported incident of sudden, high-speed acceleration in a Toyota Prius on a San Diego, Calif., freeway last week.

The National Highway Traffic Safety Administration said in a statement that it continues to investigate but "we may never know exactly what happened with this car."

The agency said its engineers are reviewing data from the Prius owned by James Sikes to try to understand what happened with his hybrid. But so far, NHTSA says it has not been able to find anything to explain the incident that Sikes reported.

Sikes called 911 last Monday to report losing control of his Prius as the hybrid reached speeds of 94 mph. A highway patrol officer helped bring the vehicle to a safe stop.

Inspectors in California tried during a two-hour test drive to duplicate the acceleration, but were unable to do so.

John Gomez, an attorney for Sikes said the failure to repeat the incident is insignificant and not surprising.

"They have never been able to replicate an incident of sudden acceleration. Mr. Sikes never had a problem in the three years he owned this vehicle," he said Sunday.

But Kurt Bardella, a spokesman for Rep. Darrell Issa, R-Calif., said the failure to duplicate the stuck accelerator, along with a vehicle design to prevent such occurrences, raises questions about the driver's story.

"We're not saying Mr. Sikes is wrong or that he lied, we're saying that questions have arisen in the investigation," Bardella said.

Toyota Motor Corp. planned to announce preliminary findings of its investigation at a news conference Monday in San Diego.

NHTSA is looking into claims from more than 60 Toyota owners that their vehicles continue to accelerate unexpectedly despite having their vehicles repaired.

Technicians with the NHTSA and Toyota could not duplicate what Sikes said he experienced March 8 on a mountainous but lightly traveled stretch of Interstate 8 east of San Diego, according to a congressional staffer's memo prepared for the House Committee on Oversight and Government Reform.

"Every time the technician placed the gas pedal to the floor and the brake pedal to the floor the engine shut off and the car immediately started to slow down," the memo read.

According to the memo, a Toyota official who was at the two-day inspection last week in suburban San Diego explained that an electric motor would "completely seize" if a system to shut off the gas when the brake is pressed fails, and there was no evidence to support that happened.

"In this case, knowing that we are able to push the car around the shop, it does not appear to be feasibly possible, both electronically and mechanically that his gas pedal was stuck to the floor and he was slamming on the brake at the same time," according to the memo.

Toyota has recalled millions of cars because of floor mats that can snag gas pedals or accelerators that can sometimes stick. Sikes' car was covered by the floor mat recall but not the one for sticky accelerators. He later told reporters that he tried to pull on the gas pedal during his harrowing ride, but it didn't "move at all."

The Prius is powered by two electric motor-generators and a small gasoline engine, all connected by transmission gears. A computer, which Toyota calls the "hybrid control computer" determines what combination of motors is needed and which would be most efficient.

Craig Hoff, a professor of mechanical engineering at Kettering University in Flint, Mich., said that for the Prius to accelerate out of control, at least two systems would have to fail simultaneously. They are the sensor signal that tracks the brake and gas pedal positions when the driver presses on them and the hybrid control computers.

"The chance of them both going wrong, plus the fact that the signal is bad, it just seems very, very, very remote," Hoff said. "Could it happen? Statistically, yes. But it just doesn't seem very likely."

Several events usually combine to cause problems with cars, and it's difficult to reproduce them, Hoff said.

"It's going to make it really hard to find, because you've got to line up the multiple effects," he said.

The congressional memo said both the front and rear brakes were worn and damaged by heat, consistent with Sikes saying that he stood on the brake pedal with both feet and was unable to stop the car. But if the fail-safe system worked properly, the brakes wouldn't have been damaged because power would have been cut to the wheels.

Gomez said the best evidence that his client was frantically slamming the brakes is that a California Highway Patrol officer who was giving Sikes instructions over a loudspeaker smelled burning brakes and saw the lights on.

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Spagat reported from San Diego. AP Auto Writer Tom Krisher contributed to this report from Detroit.