(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window.)
* Benchmark 10-year yields hit fresh 13-month peak
* Rate-sensitive bank stocks climb
* McDonald's rises as DB raises rating, price target
* Indexes: Dow up 0.28%, S&P down 0.50%, Nasdaq off 1.31% (Adds comment, details; updates prices)
By Shashank Nayar and Medha Singh
March 17 (Reuters) - The S&P 500 and the Nasdaq dropped on Wednesday as U.S. bond yields spiked ahead of the Federal Reserve's policy statement which could provide hints on whether the central bank would raise interest rates sooner than expected.
The benchmark 10-year yield US10YT=RR ticked up to a new 13-month high of 1.676%, denting demand for some high-growth technology stocks and pressuring the Nasdaq by about 1%. US/
Fears that $1.9 trillion dollar stimulus would overheat the economy have triggered a rapid spike in long-duration Treasury yields, derailing Wall Street's main indexes from their peaks last month.
The Fed is expected to issue a blowout GDP forecast for 2021 at the end of a two-day meeting on Wednesday at 2 p.m. ET (1800 GMT). The meet will be followed by Fed Chair Jerome Powell's news conference, where he is likely to reassure the economy can take off without generating excessive inflation. the Fed has reiterated it will remain dovish till the labor market fully recovers, eurodollar futures, which track short-term rate expectations, have priced a 90% chance of a rate hike by December 2022, with three hikes seen in 2023.
"Fed is more willing to allow inflation to run hot at the same time it wants to bond markets to not run past the current level," said Sam Stovall, chief investment strategist at CFRA Research in New York.
"If the Fed hints they would buy bonds at the longer end of the (Treasury yield) curve, it would help equities rally."
The S&P 500 and the Dow on Monday reached all-time closing highs while the Nasdaq has recovered more than half of its losses since confirming a correction last week on optimism over the latest round of fiscal stimulus and vaccinations.
At 11:46 a.m. ET, the Dow Jones Industrial Average .DJI rose 90.98 points, or 0.28%, to 32,916.93, the S&P 500 .SPX lost 19.84 points, or 0.50%, to 3,942.87 and the Nasdaq Composite .IXIC lost 176.93 points, or 1.31%, to 13,294.64.
Apple Inc AAPL.O , Netflix Inc NFLX.O and Microsoft Corp MSFT.O slipped between 1.4% and 2.2% in a continuation of a rotation out of high-flying companies into last year's laggards including financials .SPSY , industrials .SPLRCI and materials .SPLRCM .
The banks index .SPXBK and airlines .SPCOMAIR , expected to benefit from a reopening economy, added more than 1%.
"The play is value ... as the economy picks up, there is a lot more leverage in earnings growth for cyclical companies," said Eric Diton, president and managing director of the Wealth Alliance in New York.
Fast-food retailer McDonald's MCD.N gained nearly 1.5% after Deutsche Bank (DE: DBKGn ) raised its target price on the stock and also upgraded its recommendation to "buy" from "hold".
Declining issues outnumbered advancers by a 1.8-to-1 ratio on the NYSE and by a 1.9-to-1 ratio on the Nasdaq.
The S&P 500 posted 18 new 52-week highs and no new low, while the Nasdaq recorded 88 new highs and 48 new lows.
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