* Indexes down: Dow 0.2%, S&P 500 and Nasdaq flat

* Marvell Technology ( MRVL ) up after upbeat Q2 forecast

* Dollar Tree ( DLTR ), Best Buy ( BBY ) gain on upbeat forecast

* U.S. inflation rises at its fastest pace in three years

(Updates after market open)

By Twesha Dikshit and Utkarsh Hathi

May 28 (Reuters) - Wall Street's main indexes retreated

from record highs on Thursday as escalating tensions between the

U.S. and Iran dampened hopes of an imminent peace deal, while

investors digested key inflation data.

Tehran targeted a U.S. airbase on Thursday after Washington

launched fresh strikes. The move came hours after President

Donald Trump rejected a report that he was close to a compromise

deal with Iran.

Oil prices jumped nearly 3%, while U.S. Treasury yields edged

higher with the continued closure of the Strait of Hormuz adding

to inflation worries.

Data showed U.S. inflation increased at its fastest pace in

three years in April, driven by higher energy prices amid the

Iran war.

"I don't think the data changed the narrative. The number

was not as bad as feared. That pushes back a little bit against

some expectations for rate hikes," said Angelo Kourkafas, senior

global investment strategist at Edward Jones.

"A lot of the focus will still be on the Iran negotiations

and the AI trends and these are the two things that (will) drive

the narrative for equities."

At 10:01 a.m. ET, the Dow Jones Industrial Average fell

110.97 points, or 0.22%, to 50,533.31, the S&P 500 gained

1.71 points, or 0.02%, to 7,521.68 and the Nasdaq Composite

lost 6.80 points, or 0.02%, to 26,667.93.

Six of the 11 main S&P 500 sectors were in the red. The

industrial sector led losses with a drop of 1.1%.

Caterpillar ( CAT ) was down 3%, weighing on the Dow.

Airlines shares declined as oil prices rose, with American

Airlines, Jetblue ( JBLU ) and Southwest Airlines ( LUV )

down between 1.5% and 2.2%.

The consumer discretionary sector was down 0.7%

after gaining nearly 2% in the previous session.

AI OPTIMISM, EARNINGS GROWTH FUEL MARKET RALLY

Renewed confidence in AI and earnings growth momentum have

underscored the recent rally, with all three major indexes

closing at a record high on Wednesday.

The S&P 500 was on track for a ninth consecutive

weekly gain, its longest winning streak since December 2023.

Marvell Technology ( MRVL ) rose 2.2% after forecasting

second-quarter revenue above estimates. The company's shares

have more than doubled so far this year.

Snowflake soared 34% after the data analytics firm

lifted its annual product revenue forecast and announced a

five-year AI infrastructure deal worth $6 billion with Amazon

Web Services.

Peers Datadog ( DDOG ) , and MongoDB ( MDB ) rose 1.1% and

9.8%, respectively.

Dollar Tree ( DLTR ) climbed 16.8% after the discount

retailer lifted its full-year profit forecast, while Best Buy ( BBY )

added 13.5% after the electronics vendor forecast

second-quarter sales above estimates.

Kohl's gained 18.5% after the department store chain

posted quarterly sales in line with estimates, and stuck to its

annual targets.

Drone companies rose after the Wall Street Journal reported

that the Trump administration was in talks to fund drone firms.

Unusual Machines ( UMAC ) jumped 40.1% while AeroVironment ( AVAV )

and Kratos Defense & Security Solutions added

14.5% and 12.7%, respectively.

Declining issues outnumbered advancers by a 1.48-to-1 ratio

on the NYSE and by a 1.28-to-1 ratio on the Nasdaq.

The S&P 500 posted 7 new 52-week highs and 7 new lows while

the Nasdaq Composite recorded 49 new highs and 43 new lows.