(Adds final prices and market details after close of trading)

* Indexes fall: Dow 0.65%, S&P 500 0.67%, Nasdaq 0.84%

* After a choppy session, chips finish flat while

software falls

* Akamai Technologies ( AKAM ) shares sink after announcing senior

notes offering

* U.S. 10-year yields rally to highest levels in more

than a year

By Sinéad Carew and Ragini Mathur

May 19 (Reuters) - Wall Street's main indexes closed

lower on Tuesday with the Nasdaq leading declines, after the

benchmark 10-year Treasury yield climbed to its highest level in

more than a year on mounting inflation concerns as oil prices

stayed elevated and investors were anxious about the lack of a

peace agreement between the U.S. and Iran.

The S&P 500 and the technology-heavy Nasdaq marked their

third straight day of declines as investors took profits after a

steep rally that started in late March. Investors also

considered the possibility that the next move by the Federal

Reserve could be interest rate hikes, if inflation stays

high.

While Brent crude futures settled down 0.73%, they were

still above $110 a barrel as traders monitored the latest

communications about the Middle East war which has all but

closed the Strait of Hormuz, a crucial energy conduit. After

announcing on Monday that he had held off on a planned military

strike against Iran scheduled for Tuesday, due to a new proposal

from Tehran to end the Iran war, U.S. President Donald Trump

said that the U.S. may need to strike Iran again but that Iran

was begging for a deal.

U.S. Vice President JD Vance said the U.S. and Iran have

made a lot of progress in their talks and that neither side

wants to see a resumption of the military campaign.

Meanwhile, with inflation expectations rising, the 10-year

Treasury yield surged, in its third day of gains, to

4.687%, its highest level since January 2025. After paring gains

it was around 4.66%.

"There's nothing constructive that's leading us to believe

there's going to be a ceasefire with any sort of substance. As

long as there is nothing happening along those fronts, oil is

remaining high, bond yields are remaining high, and the market's

anxiety levels are getting increasingly elevated," said Michael

James, managing director and equity sales trader at Rosenblatt

Securities. He added, "As each day goes by and nothing

substantive is happening, that becomes more problematic. That's

why you're seeing equities having a tough time in the last few

days."

Traders have started to price in higher probabilities for rate

hikes from the Federal Reserve. The latest bets on a

25-basis-point increase in rates for December were at a 41.7%

probability, while the probability for a 50-basis-point hike was

15.7%, up from 4.7% a week ago, according to CME Group's

FedWatch tool. On Wednesday, investors will focus on minutes

from the Fed's last policy meeting for clues on the extent of

policymakers' support for pivoting to a neutral stance from an

easing bias.

"Rates are obviously front-and-center," said Garrett Melson,

portfolio strategist at Natixis Investment Managers Solutions.

"It's really not about the level of rates. It's about the rate

of change. Markets can handle a slow, steady grind higher, but

when you have these step functions higher, that's where it tends

to translate to some indigestion in the market."

The Dow Jones Industrial Average fell 322.24 points,

or 0.65%, to 49,363.88, the S&P 500 lost 49.44 points, or

0.67%, to 7,353.61 and the Nasdaq Composite lost 220.02

points, or 0.84%, to 25,870.71.

Six of the 11 major S&P 500 sectors ended lower, with

technology and communications services

providing the biggest index-point drags on the benchmark index.

Higher yields often put pressure on shares of high-growth

companies because their valuations depend heavily on future

profit expectations.

Materials was the biggest sector decliner, falling

nearly 2.3%. The defensive healthcare sector led gains

with a 1.1% advance.

After outperforming earlier in the session, the S&P 500

software index reversed course to lose ground and

close down 1.2%. Afternoon trading in the Philadelphia

Semiconductor Index was choppy but it ended close to flat

with a 0.03% gain after falling more than 3% earlier in the day.

Investors are waiting anxiously for AI chip leader Nvidia ( NVDA )

to report quarterly results after the bell on

Wednesday. The performance of the world's most valuable company

will be closely watched for evidence that AI-driven demand is

strong enough to justify elevated valuations across

semiconductors. Rosenblatt's James said investors were already

preparing on Tuesday for Nvidia's ( NVDA ) report, as it often moves the

entire market along with the semiconductor sector.

Among individual stocks, cloud firm Akamai Technologies ( AKAM )

ended down 6.3% after it announced a $2.6 billion convertible

bond offering.

Declining issues outnumbered advancers by a 2.66-to-1 ratio

on the NYSE, where there were 140 new highs and 225 new lows. On

the Nasdaq, 1,544 stocks rose and 3,193 fell as declining issues

outnumbered advancers by a 2.07-to-1 ratio. The S&P 500

posted 18 new 52-week highs and 22 new lows while the Nasdaq

Composite recorded 51 new highs and 180 new lows.

On U.S. exchanges, 19.45 billion shares changed hands

compared with the 18.38 billion moving average for the last 20

sessions.