US STOCKS-Wall Street falls as surging bond yields hammer tech shares

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* Mega-cap tech names drag S&P 500, Nasdaq lower

* Ford rises on $11.4 bln investment with SK Innovation

* Indexes fall: Dow 0.25%, S&P 0.80%, Nasdaq 1.4% (Updates to open)

By Devik Jain and Sruthi Shankar

Sept 28 (Reuters) - The Nasdaq fell the most among Wall Street indexes on Tuesday as technology heavyweights came under pressure from a surge in bond yields on expectations of higher interest rates and rising inflation.

At 9:42 a.m. ET, the Dow Jones Industrial Average was down 88.89 points, or 0.25%, at 34,780.48, the S&P 500 was down 35.36 points, or 0.80%, at 4,407.75, and the Nasdaq Composite was down 209.42 points, or 1.40%, at 14,760.55.

The two-year U.S. Treasury yield surged to 18-month highs, weighing on shares of high-growth companies whose values are closely linked to future earnings.

Shares of Apple, Microsoft Corp, Amazon.com Inc and Google-parent Alphabet Inc dropped between 1.5% and 1.8%.

These stocks have benefited from the low-interest rate environment since the start of the pandemic.

Nine of the 11 major S&P sectors declined in early trading.

Energy and financials outperformed as investors pivoted into sectors that stand to gain the most from an economic revival.

The S&P energy sector has gained nearly 12.3% so far in September, and is on track to break a two-month losing streak.

"This is the very similar playbook as we saw in the first half up until about June when the Fed started spooking folks with pulling forward the dot plot," said Jerry Braakman, chief investment officer for First American Trust in Santa Ana, California.

"So when you look at what's happening currently, we're starting to, definitely from a global perspective, rolling off a COVID curve, we've got rates going up and we've got reopening and economically sensitive or cyclical stocks taking the lead again."

The higher prices and hiring difficulties seen as the U.S. economy reopens from the pandemic could prove "more enduring than anticipated," Fed Chair Jerome Powell said in prepared remarks ahead of his hearing before the U.S. Senate Banking Committee at 10 a.m. ET.

A host of other Fed officials are also slated to speak later in the day at separate events.

Market participants are waiting for data on consumer confidence, inflation and ISM manufacturing activity this week to gauge the pace of recovery.

Progress on U.S government funding negotiations was also in focus after sharply divided U.S. Senate failed on Monday to advance a measure to suspend the federal debt ceiling and avoid a partial government shutdown ahead of a Sept. 30 deadline.

The shift out of technology names was triggered after the Fed last week signaled it could tighten its accommodative monetary policies in the months ahead amid signs of recovery in the world's largest economy.

After largely underperforming its growth counterpart so far this year, the Russell 1000 value index has narrowed the gap in September, and is now up 17.1%.

Ford Motor Co rose 3.4% after the U.S. automaker and its Korean battery partner SK Innovation said they would invest $11.4 billion to build an electric F-150 assembly plant and three battery plants in the United States.

Declining issues outnumbered advancers for a 1.78-to-1 ratio on the NYSE and by a 2.3-to-1 ratio on the Nasdaq.

The S&P index recorded 15 new 52-week highs and four new lows, while the Nasdaq recorded 24 new highs and 28 new lows. (Reporting by Sruthi Shankar, Medha Singh and Devik Jain in Bengaluru; Editing by Subhranshu Sahu, Sriraj Kalluvila and Maju Samuel)