US STOCKS-Wall Street slips as trade tensions fuel slowdown fears

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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 0.75%, S&P 0.68%, Nasdaq 0.76%

(Updates to open)
By Amy Caren Daniel
May 29 (Reuters) - The S&P 500 and the Nasdaq fell to their
two-month lows on Wednesday after China signaled readiness to
escalate the trade war with the United States, triggering fears
of a long, drawn-out dispute that could weigh on global 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. "Earlier in the year we thought the U.S.-China agreement was
close to being done, and now it looks more far away than ever
and that is making investors worried," said Kim Forrest, chief
investment officer at Bokeh Capital Partners in Pittsburgh.
"Fears of a recession are being compounded by two things,
one is the reality of what the trade war could bring, another is
whenever the markets hit a new high it is a self-fulfilling
prophesy to say we can't go any higher."
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 dropped
0.77%, while the broader financial sector .SPSY declined
0.66%.
Technology stocks .SPLRCT were the hardest hit, falling
0.70% on losses in shares of iPhone maker Apple Inc AAPL.O ,
Microsoft Corp MSFT.O and chipmakers. The Philadelphia chip
index .SPX was down 0.58%.
At 9:47 a.m. ET the Dow Jones Industrial Average .DJI was
down 188.99 points, or 0.75%, at 25,158.78. The S&P 500 .SPX
was down 19.07 points, or 0.68%, at 2,783.32 and the Nasdaq
Composite .IXIC was down 57.80 points, or 0.76%, at 7,549.55.
All the major S&P sectors were in the red, with the energy
sector .SPNY posting the steepest loss of 1.14%, weighed down
by weak crude prices. O/R
Among other stocks, Capri Holdings Ltd CPRI.N plunged 10%,
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 5.2% after Goldman Sachs
downgraded the stock to "sell".
Declining issues outnumbered advancers for a 4.30-to-1 ratio
on the NYSE and for a 4.16-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week high and 34 new lows,
while the Nasdaq recorded seven new highs and 129 new lows.