By Kristina Cooke

NEW YORK (Reuters) - Wall Street stocks fell on Friday to round out the worst week in three months as worries about high oil prices hammered energy-sensitive sectors and left investors on edge about inflation at the onset of a holiday weekend.

Economic bellwethers United Technologies <UTX.N> and Caterpillar <CAT.N> were among the top drags on the Dow Jones industrials.

General Motors' <GM.N> shares fell to a 26-year low after the company said strikes had reduced its earnings by a total of $2.8 billion.

Worries about the impact of high oil prices, which topped $135 a barrel a day earlier, pressured stocks throughout the week, stoking fears about inflation and weaker consumer spending.

Higher oil pushed the American Stock Exchange index of airline stocks <.XAL> down another 4.2 percent on Friday and a 20-percent drop on the week.

"Oil prices are what's driving us down again. As they just continue to go higher and higher, that's putting pressure on the economy, and as people think the economy is not going to do so well, that's hurting stocks," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones industrial average <.DJI> fell 145.99 points, or 1.16 percent, to close at 12,479.63. The Standard & Poor's 500 Index <.SPX> slid 18.42 points, or 1.32 percent, to 1,375.93, while the Nasdaq Composite Index <.IXIC> ended down 19.91 points, or 0.81 percent, at 2,444.67.

For the week, the Dow fell 3.9 percent, the S&P 500 shed 3.5 percent and the Nasdaq dropped 3.3 percent. For all three indexes, it was their worst weekly percentage drop in three months.

Since the start of the year oil prices have climbed by more than 30 percent, sapping consumer spending on everything from driving to shopping.

Data from a realtors group showed a decline in U.S. existing home sales that was less than expected. But the report gave a mixed picture, with inventories of unsold homes rising 10.5 percent last month.

Shares of American International Group Inc <AIG.N>, the world's largest insurer, fell 2.3 percent to $36.95. Moody's Investors Service cut the company's credit rating, citing losses from its exposure to the U.S. mortgage market and credit derivatives.

GM shares were down 4.5 percent at $17.60, while United Technologies' shares fell 2.6 percent to $70 and Caterpillar shares slid 0.8 percent to $81.55.

Restaurant Cheesecake Factory <CAKE.O> fell 6.4 percent to $19.53 and Darden Restaurants <DRI.N>, the operator of the Red Lobster chain, fell 4.4 percent to $31.74.

Takeover developments were a bright spot, as the Dow and the Nasdaq were on track for their worst week in three months.

Belgian brewer InBev <INTB.BR> is working on a bid for U.S. rival Anheuser-Busch Companies Inc <BUD.N>, according to a source familiar with the situation. Shares of the brewer of Budweiser beer ended 7.7 percent higher at $56.61.

Trading volume was light on the New York Stock Exchange, with about 1.1 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 1.69 billion shares traded, also short of last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by a ratio of about 2 to 1 on the NYSE and Nasdaq.

(Editing by Gary Crosse)