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* Futures down: Dow 0.7%, S&P 500 1.1%, Nasdaq 1.6%

May 15 (Reuters) - Futures tracking the Nasdaq and the

S&P 500 tumbled more than 1% on Friday, with an AI-driven rally

in U.S. stocks poised to stall, as Treasury yields jumped on

concerns about higher inflation driven by the Middle East

conflict.

The yield on 10-year Treasury notes, a benchmark

for global borrowing costs, hit 4.54% - its highest level since

early June 2025.

Global bond yields also jumped as increasing evidence of

economic damage from the Iran war prompted investors to assume

interest rates will rise faster than expected and growth will

suffer.

The odds of the U.S. Federal Reserve hiking interest rates

by 25 basis points in December have more than doubled over the

past week to about 40%, according to CMEGroup's Fedwatch tool.

Brent crude prices rose almost 3% to $109 a barrel

as the Strait of Hormuz remained closed, heightening concerns

over global energy supplies.

"The longer the Middle East war drags on, the higher energy

prices rise - fuelling inflation expectations and borrowing

costs, and increasing the cost of building that extra data

center," said Ipek Ozkardeskaya, senior analyst at Swissquote

Bank.

"This is a red flag that many tech investors have been

ignoring, blinded by shiny earnings and even shinier earnings

expectations."

At 05:38 a.m. ET, Dow E-minis were down 330 points,

or 0.66%, and S&P 500 E-minis were down 80.75 points, or

1.07%. Nasdaq 100 E-minis were down 463.25 points, or

1.56%.

The pullback follows another record-setting session on Wall

Street, with the S&P 500 and the Nasdaq closing

at record highs. The Dow Jones Industrial Average

reclaimed the 50,000 milestone, while the S&P 500 topped 7,500

for the first time.

Markets had earlier appeared to shake off inflation concerns

tied to the Iran conflict, with enthusiasm around artificial

intelligence powering a rally and keeping major indexes on track

for weekly gains.

Investors also closely watched the U.S.-China summit, which

wrapped up on Friday with no major breakthrough, after

discussions between the two nations covered a sweeping agenda

spanning trade, tariffs, Iran and Taiwan.

Among premarket movers, semiconductor equipment maker

Applied Materials ( AMAT ) fell 2.8% even after forecasting

third-quarter revenue and adjusted profit above Wall Street

estimates.

Dexcom ( DXCM ) gained 2%. The medical device maker said it

will appoint two independent directors and revamp a key board

committee in collaboration with activist investor Elliott

Investment Management.

Airline stocks were broadly lower as surging oil prices

weighed on the sector, with Delta Air Lines ( DAL ), United

Airlines and Southwest Airlines ( LUV ) falling between

1.3% and 1.5%, while Alaska Air ( ALK ) shares declined 1.8%.