US STOCKS-Wall Street at 2-month low as trade tensions mount

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* China ready to hit back at U.S. with rare earths
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* Bond yields drop to 20-month lows; Bank stocks fall
* All S&P major sectors fall; energy leads losses
* Capri plunges after profit forecast disappoints
* Indexes down: Dow 0.78%, S&P 0.64%, Nasdaq 0.74%

(Changes comment, updates prices)
By Amy Caren Daniel
May 29 (Reuters) - Wall Street's main indexes hit more than
two-month lows on Wednesday, after China signaled further
escalation in its trade war with the United States, fuelling
fears that the dispute could be protracted and pressure global
economic growth.
Beijing is ready to use rare earths, a group of 17 chemical
elements used in everything from high-tech consumer electronics
to military equipment, to strike back at the United States,
Chinese newspapers warned. Adding to worries, China's Huawei Technologies Co Ltd
HWT.UL filed a lawsuit against the U.S. government in its
latest bid to fight sanctions from Washington. "There is no trade deal, despite the daily back-and-forth
there probably will not be a deal that's going to be meaningful
and the markets are kind of realizing that," said Dave Ellison,
portfolio manager with Hennessy Funds in Boston.
"The yield curve inverting is scaring people. There aren't
recessionary fears as yet but if the market goes down and the
Fed doesn't say anything then we can very well head into a
recession."
The benchmark S&P 500 .SPX index is now about 6% away from
its all-time high of 2,954.13 hit on May 1.
Trade worries and slowdown fears have pressured investors to
dump shares globally and seek safety in German and U.S.
government debt.
Benchmark U.S. Treasury yields fell to their 20-month lows
and the yield curve between three-month bills and 10-year notes
also inverted, which is widely seen as a precursor to a
recession. US/
Interest-rate sensitive banking stocks .SPXBK fell 0.49%,
while the broader financial sector was off 0.43%.
Healthcare stocks .SPXHC were the hardest hit, falling
0.88%, due to a 4% drop in Johnson & Johnson JNJ.N after a
lawsuit accusing the drugmaker of fueling the U.S. opioid
epidemic proceeded to its second day of trial. Markets seemed to shrug off comments made by U.S. Special
Counsel Robert Mueller saying that charging President Donald
Trump was never an option for his team of prosecutors.
At 11:03 a.m. ET The S&P 500 .SPX was down 17.97 points,
or 0.64%, at 2,784.42 and the Nasdaq Composite .IXIC was down
56.48 points, or 0.74%, at 7,550.87.
Meanwhile, the blue-chip Dow Jones Industrial Average .DJI
was down 196.79 points, or 0.78%, at 25,150.98, its lowest level
since February.
All the major S&P sectors were in the red. The energy sector
.SPNY declined 0.88%, weighed down by weak crude prices. O/R
Among other stocks, Capri Holdings Ltd CPRI.N plunged
8.6%, the most among S&P companies, after the Michael Kors owner
issued a disappointing first-quarter profit forecast as it
spends more on marketing. General Mills GIS.N dropped 5.7% after Goldman Sachs
downgraded the stock to "sell".
Declining issues outnumbered advancers for a 2.41-to-1 ratio
on the NYSE and for a 2.65-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week highs and 36 new lows,
while the Nasdaq recorded 13 new highs and 170 new lows.