US STOCKS-Wall Street drops as bond market stokes recession fears

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* Indexes drop: Dow 1.09%, S&P 0.70%, Nasdaq 0.31%
* U.S. 10-yr yields hit lowest levels since Oct 2016
* China's offshore yuan edges lower again
* Nine of 11 S&P sectors down; financials most hit

(Adds details, updates prices)
By Medha Singh
Aug 7 (Reuters) - U.S. stocks slipped on Wednesday, as
investors reeling from rising trade tensions fled riskier assets
for perceived safer havens, leading the bond market to price in
a slide into recession.
U.S. Treasury yields took another dramatic drop and the
premium on three-month bill rates US3MT=RJR above 10-year note
yields US10YT=RJR was at its most elevated levels since March
2007. This so-called inversion between the two maturities has
preceded every U.S. recession in the past 50 years. US/
The drop in yields also reflected a jump in expectations
that the Federal Reserve would cut key borrowing costs three
more times by year-end, with markets fully pricing in a
reduction in September. MMT/
"Whether the U.S. economy is strong enough to withstand the
next phase of a trade war is giving people concern right now,"
said Mike Loewengart, vice-president of investment strategy at
E*Trade Financial in New York.
"Then we add in what's at the disposal of the U.S. Federal
Reserve, some begin to question whether that tool chest could be
depleted much too quicker before we have even encountered a
recession."
The central banks in New Zealand, India and Thailand on
Wednesday cut rates amid fears that the trade war could hit
global growth.
The concerns remerged after President Donald Trump last week
threatened to slap 10% levies on the rest of $300 billion of
Chinese imports. The interest-rate sensitive S&P 500 banks sub-sector
.SPXBK slipped 3.26%. The broader financial index .SPSY
dropped 2.21%, the most among nine of the 11 major S&P sectors
trading lower.
The energy sector .SPNY shed 1.65% as oil prices slid more
than 3% on demand concerns. O/R
At 11:08 a.m. ET, the Dow Jones Industrial Average .DJI
was down 283.91 points, or 1.09%, at 25,745.61, easing from a
near 600 points drop.
The S&P 500 .SPX was down 20.19 points, or 0.70%, at
2,861.58 while the Nasdaq Composite .IXIC was down 24.61
points, or 0.31%, at 7,808.66.
China's offshore yuan CNH= dipped on Wednesday with the
currency markets still on edge after China's central bank set
its official reference rate at an 11-year low.
A partial recovery in the yuan on Tuesday and a softer
rhetoric from the White House on trade had helped the S&P 500
and the Nasdaq break a six-day losing streak. CNY/
With the second-quarter earnings season winding down, about
73% of the 426 S&P 500 companies that have reported results so
far have topped earnings estimates.
Walt Disney Co DIS.N dropped 4.7% after its quarterly
earnings missed analysts' forecast as the company invested
heavily in its streaming platform and began folding in assets
purchased from Twenty-First Century Fox. CVS Health Corp CVS.N rose 6.1% after the drugstore chain
posted profit above estimates, boosted by strong sales in the
Aetna health insurance business it acquired last year and raised
its full-year earnings forecast. Declining issues outnumbered advancers for a 2.31-to-1 ratio
on the NYSE and for a 1.74-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 29 new
lows, while the Nasdaq recorded 21 new highs and 156 new lows.