* Futures down: Dow 0.9%, S&P 500 1.2%, Nasdaq 1.7%

* Applied Materials ( AMAT ) down after quarterly results

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

Elliott

(Updates before market open)

By Ragini Mathur and Utkarsh Hathi

May 15 (Reuters) - Wall Street indexes were headed for a

sharply lower open 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 4.56% - 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 almost 3% to $109 a barrel

as the Strait of Hormuz remained closed, intensifying concerns

over global energy supplies. Negotiations to end the

2-1/2-month-old conflict between Iran and the U.S. showed no

signs of progress.

The CBOE Volatility Index, known as Wall Street's

"fear gauge" hit two-week highs, rising 1.91 points to 19.16.

At 08:31 a.m. ET, Dow E-minis were down 463 points,

or 0.92%, and S&P 500 E-minis were down 90 points, or

1.2%. Nasdaq 100 E-minis were down 504.5 points, or

1.7%.

The pullback follows another record-setting session on Wall

Street, with the S&P 500 and the Nasdaq closing

at record highs. The Dow Jones Industrial Average

reclaimed the 50,000 milestone, while the S&P 500 topped 7,500

for the first time.

Markets had earlier appeared to shake off inflation concerns

tied to the Iran conflict, with enthusiasm around artificial

intelligence powering a rally and keeping major indexes on track

for weekly gains.

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 premarket movers, semiconductor equipment maker

Applied Materials ( AMAT ) fell 1.8% even after forecasting

third-quarter revenue and adjusted profit above Wall Street

estimates.

Meanwhile, Nvidia retreated 2.5% after sharp gains in the

previous session. U.S. Trade Representative Jamieson Greer told

Bloomberg TV that chip export controls were not a major topic in

China talks.

Dexcom ( DXCM ) jumped 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.

Airline stocks were broadly lower as surging oil prices

weighed on the sector, with Delta Air Lines ( DAL ) down 1.6%,

while United Airlines, Southwest Airlines ( LUV ), and

Alaska Air ( ALK ) fell between 1.5% and 2.1%.