US STOCKS-S&P 500, Nasdaq drop as tech stocks slip ahead of Fed

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* Benchmark 10-year yields hit fresh 13-month peak
* Rate-sensitive bank stocks climb
* McDonald's rises as DB raises rating, price target
* Indexes: Dow up 0.22%, S&P 0.47%, Nasdaq off 1.22%

(Updates to market open)
By Shashank Nayar and Medha Singh
March 17 (Reuters) - The S&P 500 and the Nasdaq dropped on
Wednesday as U.S. bond yields spiked ahead of the Federal
Reserve's policy statement which could provide hints on whether
the central bank would raise interest rates sooner than
expected.
The benchmark 10-year yield US10YT=RR ticked up to a new
13-month high of 1.676%, denting demand for some high-growth
technology stocks and pressuring the tech-heavy Nasdaq by about
1%. US/
Fears that massive stimulus would overheat the economy has
triggered a rapid spike in long-duration Treasury yields,
derailing Wall Street's main indexes from their peaks last
month.
The Fed is expected to issue a blowout GDP forecast for 2021
at the end of a two-day meeting on Wednesday at 2 p.m. ET (1800
GMT). The meet will be followed by Fed Chair Jerome Powell's
news conference, where he is likely to reassure the economy can
take off without generating excessive inflation. While the Fed has reiterated it will remain dovish till the
labor market fully recovers, some policymakers could hint at an
increase in rates in 2023. Some investors and economists are
betting on even earlier rate hikes, with Morgan Stanley
predicting a tightening of monetary policy early next year.
"I don't think investors believe that the Fed is going to
change its stance but there are fears for inflation to jump in
the near term," said Arthur Weise, chief investment officer at
Kingsland Growth Advisors in New York.
"Market is of the view that the 10-year yield could be
higher and if the Fed signals anything that matches that view,
we could yields jump past the 2% mark."
The S&P 500 and the Dow started off the week at all-time
closing highs while the Nasdaq has recovered more than half of
its losses since confirming a correction last week on optimism
over the latest round of fiscal stimulus and vaccinations.
At 9:43 a.m. ET, the Dow Jones Industrial Average .DJI
rose 87.87 points, or 0.27%, to 32,913.82, the S&P 500 .SPX
lost 16.59 points, or 0.42%, to 3,946.12 and the Nasdaq
Composite .IXIC lost 164.51 points, or 1.22%, to 13,307.06.
Apple Inc AAPL.O , Facebook Inc FB.O , Netflix Inc
NFLX.O and Microsoft Corp MSFT.O slipped between 0.6% and
1.2% in a continuation of a rotation out of high-flying
companies into last year's laggards including financials
.SPSY , industrials .SPLRCI and materials .SPLRCM .
The banks index .SPXBK and airlines .SPCOMAIR , expected
to benefit from a reopening economy, added more than 1%.
"The play is value ... as the economy picks up, there is a
lot more leverage in earnings growth for cyclical companies,"
said Eric Diton, president and managing director of the Wealth
Alliance in New York.
Fast-food retailer McDonald's MCD.N gained nearly 1.5%
after Deutsche Bank raised its target price on the stock and
also upgraded its recommendation to "buy" from "hold".
Declining issues outnumbered advancers by a 1.6-to-1 ratio
on the NYSE and by a 2.9-to-1 ratio on the Nasdaq.
The S&P 500 posted 13 new 52-week highs and no new low,
while the Nasdaq recorded 41 new highs and 25 new lows.