US STOCKS-Wall Street slides as trade tensions fuel growth fears

(For a live blog on the U.S. stock market, click LIVE/ or
type LIVE/ in a news window.)
* China ready to hit back at U.S. with rare earths
-newspapers
* Bond yields drop to 20-month lows; Bank stocks fall
* All major S&P sectors fall; energy leads losses
* Capri plunges after profit forecast disappoints
* Indexes down: Dow 1.21%, S&P 0.89%, Nasdaq 0.92%

(Updates prices to early afternoon)
By Amy Caren Daniel
May 29 (Reuters) - Wall Street's main indexes hit a near
three-month low on Wednesday, as growing fears of a protracted
trade war between the United States and China sent investors
scurrying for the safety of government bonds.
Chinese newspapers warned on Wednesday that Beijing could
use rare earths to strike back at the United States after
President Donald Trump remarked he was "not yet ready" to make a
deal with China over trade. Fueling 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.
"The question about what China will do with rare has always
been there, it is certainly alarming and ratchets up the level
of uncertainty," said Tom Martin, senior portfolio manager at
GlobAlt Investments in Atlanta.
"It's a flight to safety in the United States. There are
fears that are driving investors to Treasuries and you have a
market that reached its peak about a month ago."
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.
The uncertainty in markets have pressured investors to dump
equities and seek safety in U.S. government debt, which has led
to an inversion of the yield curve between three-month bills and
10-year notes, a precursor to a possible recession. US/
Federal funds futures indicated that traders saw a 62%
chance the U.S. central bank would lower policy rates by a
quarter at its Sept. 17-18 meeting, compared with a 50%
likelihood late on Tuesday. MMT/
Interest-rate sensitive banking stocks .SPXBK fell 0.78%,
while the broader financial sector was off 0.69%.
Technology stocks .SPLRCT fell 0.66% and weighed the most
on markets, hit by losses in shares of iPhone maker Apple Inc
AAPL.O , Microsoft Corp MSFT.O and chipmakers.
The Philadelphia chip index .SOX was down 0.47%.
At 12:49 p.m. ET, the S&P 500 .SPX was down 24.89 points,
or 0.89%, at 2,777.50 and the Nasdaq Composite .IXIC was down
69.78 points, or 0.92%, at 7,537.57, their lowest level since
March.
The Dow Jones Industrial Average .DJI was down 305.83
points, or 1.21%, at 25,041.94, its lowest since February.
The benchmark S&P index fell below its 200-day moving
average, a key indicator of long-term momentum during the
session.
All the major S&P sectors were in the red, with the energy
sector .SPNY posting the steepest loss of 1.35%, weighed down
by weak crude prices. O/R
Energy and technology stocks are the worst-performing S&P
sectors this month.
Among other stocks, Johnson & Johnson JNJ.N dropped 5.4%
after a lawsuit that accused the drugmaker of fueling the U.S.
opioid epidemic proceeded to its second day of trial, pulling
healthcare stocks .SPXHC down 1.20%. Capri Holdings Ltd CPRI.N plunged 11%, 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 5.9% after Goldman Sachs
downgraded the stock to "sell".
Declining issues outnumbered advancers for a 2.59-to-1 ratio
on the NYSE and for a 2.69-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week high and 40 new lows,
while the Nasdaq recorded 15 new highs and 190 new lows.