US STOCKS-Wall Street retreats as bond market fuels recession fears

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* Indexes drop: Dow 0.94%, S&P 0.73%, Nasdaq 0.42%
* U.S. 10-yr yields hit lowest levels since Oct 2016
* Nine of 11 S&P sectors down; financials hit hardest
* Disney drops 5% after earnings miss

(Updates to early afternoon)
By Medha Singh
Aug 7 (Reuters) - U.S. stocks fell on Wednesday, as
investors reeling from rising trade tensions fled riskier assets
for perceived safer havens and the bond markets signaled a
higher risk of recession.
The premium on three-month Treasury bill rates over 10-year
Treasury yields, a closely watched U.S. recession indicator, was
at its most elevated levels since March 2007. US/
The sharp 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.
The trade concerns remerged after President Donald Trump
last week threatened to slap 10% levies on the rest of $300
billion of Chinese imports and called China a currency
manipulator on Monday. Central banks in New Zealand, India and Thailand on
Wednesday cut rates amid growing fears that the trade war could
aggravate a slowdown in the global economy.
"Central banks are trying to preemptively strike by cutting
rates. They don't want to wait until after a recession because
it'll be too late," said Adam Sarhan, chief executive officer of
50 Park Investments, an investment advisory service in New York.
The interest-rate sensitive S&P 500 banks sub-sector
.SPXBK slipped 3.34%. The broader financial index .SPSY
dropped 2.18%, the most among nine of the 11 major S&P sectors
trading lower.
The energy sector .SPNY shed 1.75% as oil prices slid more
than 3% on demand concerns. O/R
At 12:46 p.m. ET, the Dow Jones Industrial Average .DJI
was down 243.45 points, or 0.94%, at 25,786.07, easing from a
near 600 point drop.
The S&P 500 .SPX was down 20.97 points, or 0.73%, at
2,860.80 while the Nasdaq Composite .IXIC was down 33.21
points, or 0.42%, at 7,800.06.
The benchmark S&P 500 is now about 6% away from its all-time
high it hit last month and on pace to drop for the seventh time
in the last eight sessions.
Walt Disney Co DIS.N dropped 5% after its quarterly
earnings missed analysts' forecast on higher investments in its
streaming platform. CVS Health Corp CVS.N climbed 5.7% after the drugstore
chain raised its full-year profit forecast. Declining issues outnumbered advancers for a 1.88-to-1 ratio
on the NYSE and for a 1.68-to-1 ratio on the Nasdaq.
The S&P index recorded five new 52-week highs and 30 new
lows, while the Nasdaq recorded 25 new highs and 176 new lows.