Host multiple sites with Nginx using subdirectories

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user www;
worker_processes 1;

events {
    worker_connections 1024;
}

http {

  include mime.types;

  upstream mongrel_cluster1 {
      server 127.0.0.1:3001;
      server 127.0.0.1:3002;
  }

  upstream mongrel_cluster2 {
      server 127.0.0.1:4001;
      server 127.0.0.1:4002;
  }

  server {
      listen 127.0.0.1:80 default deferred;

      location /app1/ {
          proxy_pass http://mongrel_cluster1/;
      }

      location /app2/ {
          proxy_pass http://mongrel_cluster2/;
      }
  }

}