* Indexes down: Dow 0.9%, S&P 500 1.1%, Nasdaq 1.6%

* Applied Materials ( AMAT ) down after quarterly results

* Dexcom ( DXCM ) climbs after plans to revamp board panel with

Elliott

(Updates after market open)

By Ragini Mathur and Utkarsh Hathi

May 15 (Reuters) - Wall Street's main indexes fell on

Friday, as inflation fears triggered by the Middle East conflict

drove up Treasury yields and threatened to halt an AI-fueled

rally.

The yield on 10-year Treasury notes, a benchmark for

global borrowing costs, hit 4.58% - its highest level since May

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 CME Group's FedWatch tool, after

hotter-than-expected inflation readings signaled price pressures

may prove harder to contain.

"Markets are reacting to some of the recent inflation data,

which has maybe been a bit higher than expected, and continued

relative robustness in the economy," said Kiran Ganesh,

Multi-Asset Strategist at UBS Global Wealth Management.

"And so markets are pricing in some risk that central banks

might feel the need to hike interest rates."

Brent crude prices rose 2.4% to $108.28 a barrel after

comments from U.S. President Donald Trump and Iran's foreign

minister dented hopes of a quick end to the 2-1/2-month-old

conflict in the Middle East.

At 10:05 a.m. ET, the Dow Jones Industrial Average

fell 436.84 points, or 0.87%, to 49,626.62, the S&P 500

lost 84.88 points, or 1.13%, to 7,416.36 and the Nasdaq

Composite lost 433.36 points, or 1.63%, to 26,201.86.

Eight of the eleven main S&P 500 sectors were in the red,

with technology leading losses.

The CBOE Volatility Index, known as Wall Street's

"fear gauge", rose 1.5 points to 18.8.

Friday's pullback came after another record-setting session

on Wall Street, when optimism over artificial intelligence

overshadowed concerns that disruptions to global energy supplies

due to the Iran war could stoke inflation.

The Nasdaq was on track to erase its weekly gains as

recently strong chip stocks came under pressure. Nvidia ( NVDA )

and AMD each fell more than 4%, while Intel ( INTC )

dropped 6.8%. The Philadelphia SE Semiconductor Index

slid 4%.

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 other movers, Microsoft ( MSFT ) added 1.3%. Bill

Ackman's hedge fund Pershing Square will disclose a new position

in Microsoft ( MSFT ) later on Friday, the billionaire investor said.

Dexcom ( DXCM ) jumped 5.6%. 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.

Semiconductor equipment maker Applied Materials ( AMAT )

fell 2.3% even after forecasting third-quarter revenue and

adjusted profit above Wall Street estimates.

Airline stocks were broadly lower as surging oil prices weighed

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

, Southwest Airlines ( LUV ), and Alaska Air ( ALK )

falling between 1.9% and 2.7%.

Declining issues outnumbered advancers by a 3.84-to-1 ratio

on the NYSE, and by a 3.34-to-1 ratio on the Nasdaq.

The S&P 500 posted 8 new 52-week highs and 15 new lows while

the Nasdaq Composite recorded 21 new highs and 85 new lows.

(Reporting by Ragini Mathur and Utkarsh Hathi in Bengaluru;

Editing by Devika Syamnath)