* Indexes down: Dow 0.82%, S&P 0.50%, Nasdaq 0.76%

* Asset managers dip as Partners Group caps withdrawals

on PE fund

* Broadcom ( AVGO ) rises ahead of quarterly results after market

close

* U.S. services sector activity picks up in May, data

shows

(Updates to mid-afternoon trading)

By Stephen Culp and Medha Singh

NEW YORK, June 3 (Reuters) - Wall Street stocks pulled

back from record highs on Wednesday as flaring tensions in the

Middle East and rising crude prices stoked inflation jitters and

convinced investors to take some profits.

All three major U.S. stock indexes were dragged lower by

financials and tech, with the small-cap

Russell 2000 underperforming its larger-cap counterparts.

Chips gained 1.7%, indicating the artificial

intelligence fervor is alive and well, although six of the

Magnificent Seven group of AI-related megacaps were lower.

"The AI names are trading on their own completely separate

world, largely oblivious to macro and geopolitical risk, at

least within reason," said Ross Mayfield, investment strategy

analyst at Baird in Louisville, Kentucky. "And so there's going

to be a bid for those names, especially on days where everything

else looks a little bit less attractive."

The S&P Software & Services index, battered in

recent months by fears of AI disruption, dropped 3.9%.

Middle East hostilities intensified and diplomatic efforts

to end the war stood at an apparent impasse after the U.S. and

Iran traded a new round of air strikes, the latest test of a

shaky ceasefire.

Oil pricesrose, adding to worries that upward pressure on

energy prices could metastasize into broader, systemic

inflation.

"The market is desperate to believe the narrative that we're

heading towards some sort of longer-term sustainable deal in the

Middle East," Mayfield said. "And this is a market that's pretty

narrow and at all-time highs so it's susceptible to any piece of

that narrative falling apart."

Financial markets are pricing in a 41.8% likelihood of a

rate hike at the conclusion of the U.S. Federal Reserve's

December meeting, up from 9.1% one month ago, according to CME's

FedWatch tool.

But New York Fed President John Williams reiterated his

position that the central bank does not need to change interest

rates despite upside inflation risks, stating monetary policy is

"in the right place."

Economic data suggested the labor marketwas stable, and the

services sectorcontinued to expand, but input prices remain

elevated and corporate spending plans appear soft amid rising

energy costs and geopolitical uncertainties.

The Dow Jones Industrial Average fell 420.95 points,

or 0.82%, to 50,886.84, the S&P 500 lost 38.40 points, or

0.50%, to 7,571.38 and the Nasdaq Composite lost 206.28

points, or 0.76%, to 26,887.62.

Of the 11 major sectors of the S&P 500, consumer

discretionary and tech fell the most. Energy

stocks, buoyed by oil prices, enjoyed the largest

percentage gains.

Among chipmakers, Marvell ( MRVL ), Intel ( INTC ), Qualcomm ( QCOM )

, and Sandisk ( SNDK ) advanced between 4.2% and 6.9%.

Asset managers dropped after Switzerland's Partners Group

capped withdrawals from an $8.6 billion private equity

fund. KKR, Blackstone, Blue Owl and Ares

Management ( ARES ) dropped between 4.3% and 4.9%.

GameStop ( GME ) advanced 6.7% after the original meme-stock

posted a rise in quarterly revenue and unveiled a $2 billion

share buyback program.

Elon Musk's SpaceX plans to price its IPO at $135 a share to

raise a record $75 billion, a source familiar with the matter

told Reuters on Tuesday.

Broadcom ( AVGO ) was up 1.0% ahead of its results, expected

after the bell.

Declining issues outnumbered advancers by a 2.55-to-1 ratio

on the NYSE. There were 234 new highs and 154 new lows on the

NYSE.

On the Nasdaq, 1,301 stocks rose and 3,440 fell as declining

issues outnumbered advancers by a 2.64-to-1 ratio.

The S&P 500 posted 32 new 52-week highs and 18 new lows

while the Nasdaq Composite recorded 83 new highs and 124 new

lows.