* Indexes: Dow flat, S&P down 1.12%, Nasdaq down 1.70%

* Russell 2000 down 0.83%

* Chip shares lead selloff

* CBOE Volatility index at an over one-week high

(Updates with mid-afternoon prices, analyst comment)

By Twesha Dikshit and Joel Jose

June 23 (Reuters) - The Nasdaq and the S&P 500 fell to over

one-week lows on Tuesday, dragged down by sharp losses in

semiconductor stocks as investors braced for a more hawkish

Federal Reserve and scrutinized growing debt-funded AI spending.

If losses hold, the Nasdaq 100 would lose over $1 trillion

in market value. Nvidia ( NVDA ) fell 3.7%, Alphabet

lost 1%, while chipmakers Intel ( INTC ), Marvell Technology ( MRVL )

and Advanced Micro Devices ( AMD ) fell between 3.8%

and 9%.

Memory chipmakers Micron Technology ( MU ) and SanDisk ( SNDK )

, among the best performers on the S&P 500 this year,

fell 11% and 12.6%, respectively.

A sharp selloff in the previous session rocked U.S. tech

heavyweights, driven by doubts over hyperscalers' debt-backed AI

spending despite stretched valuations.

"The trade has been highly concentrated and flow-driven,

which makes it vulnerable to relatively small shifts in

sentiment," said Ross Mayfield, investment strategy analyst at

Baird.

"It does not appear to be closely tied to the fundamentals

of the AI story, but rather to the heavy concentration and

strong inflows into tech and global tech over the past few

months (that are) now starting to unwind."

Micron's results, expected on Wednesday, could offer clues

on the outlook for the memory and AI chip sector after a searing

rally this year.

The Philadelphia SE Semiconductor index tumbled 7.6%,

while the S&P 500 tech sector index shed 3.2%.

At 11:15 a.m. ET, the Dow Jones Industrial Average

rose 14.39 points, or 0.03%, to 51,727.10, the S&P 500

lost 83.46 points, or 1.12%, to 7,389.33 and the Nasdaq

Composite lost 444.00 points, or 1.70%, to 25,722.61.

The rate-sensitive Russell 2000 index was down 0.8%.

The CBOE Volatility Index, Wall Street's fear gauge, hit

an over one-week high, climbing 2.3 points to 19.58.

"When you have this potentially higher rate environment and

this competition for money (due to big IPOs) and kind of other

uncertainties about oil prices ...the whole market is likely to

get more volatile," said Melissa Brown, managing director of

investment decision research at SimCorp.

The S&P 500 is, however, heading for its strongest quarterly

gain in six years, buoyed by a Middle East ceasefire and

stronger-than-expected earnings, even as concerns over stretched

AI stock valuations resurface.

Six of 11 major S&P 500 sectors moved higher, with consumer

staples rising the most at 1.9%. With highly priced

tech shares coming under pressure recently, investors have

shifted focus to other areas of the market.

Shares of Elon Musk's SpaceX were last up 2.1%,

reversing early losses. More than $600 billion was wiped off the

company's market value over the past three sessions. SpaceX,

which debuted earlier this month, joined a list of megacaps to

tap the bond market to raise capital.

Heavily battered software shares also gained with

ServiceNow ( NOW ) rising 4%, while Adobe, Atlassian ( TEAM )

and Salesforce ( CRM ) added between 0.9% and 2%,

respectively, following Monday's losses.

Traders are increasingly betting on a second interest rate

hike by the U.S. Fed by December, according to LSEG data,

compared to expectations of just one 25-basis-point hike two

weeks ago, as investors price in hawkish monetary policy under

new Chair Kevin Warsh.

Investors are keeping a close eye on developments in the

Middle East after the U.S. waived sanctions on Iran for 60 days

after the first round of talks under a nascent peace deal.

Economic data showed U.S. manufacturing activity rose again

in June for a fourth straight month as companies placed new

orders in anticipation of shortages, but factory employment hit

a six-year low.

The focus this week will be on the closely watched Personal

Consumption Expenditures Price Index data, the Fed's preferred

inflation gauge. The data is expected on Thursday.

Declining issues outnumbered advancers by a 1.24-to-1 ratio

on the NYSE and by a 1.01-to-1 ratio on the Nasdaq.

The S&P 500 posted seven new 52-week highs and three new

lows, while the Nasdaq Composite recorded 67 new highs and 128

new lows.