By Herbert Lash

NEW YORK (Reuters) - Oil prices gained on Friday on concerns about the threat Tropical Storm Gustav poses to U.S. energy infrastructure, helping slam U.S. equities, and the dollar rose as it headed toward its best month since 1992.

U.S. stocks fell more than 1 percent as Dell warned that companies are cutting back on technology spending worldwide and economic data added to market jitters before a long U.S. Labour Day weekend.

Shortly after 1 p.m., the Dow Jones industrial average .DJI was down 119.20 points, or 1.02 percent, at 11,595.98. The Standard & Poor's 500 Index .SPX was down 11.80 points, or 0.91 percent, at 1,288.88. The Nasdaq Composite Index .IXIC was down 37.63 points, or 1.56 percent, at 2,374.01.

But shares in Europe rose, and differing views about the pace of inflation in Europe and the United States sent the price of government debt in opposite directions.

Slowing regional inflation in Europe led two-year euro zone government bond prices to rise, reducing the chance for an interest rate hike, while concerns about rising inflation in the United States pushed U.S. Treasury debt prices lower.

The U.S. dollar gained against the euro after a report showed business activity in the U.S. Midwest expanded at a far more robust rate than expected as new orders jumped.

A separate report showed U.S. consumer confidence rose to its highest in five months in August. The large recovery from depressed levels was helped by moderating energy prices, and added to optimism surrounding the surging dollar.

The reports follow data earlier in the week showing greater-than-expected U.S. economic growth in the second quarter and strong durable goods orders for July.