(Updates prices to U.S. afternoon trading)

* Equities decline with Nasdaq leading losses

* Tech stocks tumble, defensive sectors find favor

* Oil prices fall with Middle East outlook unclear; EIA

flags demand drop

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON, June 9 (Reuters) - MSCI's global equities

gauge lost ground on Tuesday as heavyweight U.S. technology

stocks stumbled and investors opted for safer bets, while oil

prices fell as updates from the Middle East brought little

clarity on progress towards peace.

On Monday, Iran and Israel had boosted hopes that tensions would

ease as they said they would stop attacking each other. But U.S.

President Donald Trump said on Tuesday that Iran had shot down a

U.S. Apache helicopter that was patrolling the Strait of Hormuz

overnight and vowed to respond, without providing details.

This was after Israel attacked the historic port city of

Tyre in southern Lebanon on Tuesday, killing at least eight

people. Tehran had warned on Monday that it would resume

hostilities if Israel continued to attack its ally Hezbollah in

Lebanon.

Meanwhile, the U.S. Energy Information Administration said oil

stockpiles in the world's largest economies were headed towards

their lowest levels since at least 2003. The EIA also said it

expects global oil demand to decline in 2026, reversing its

earlier forecast for an increase.

In equities, Wall Street's main indexes lost ground as the

session wore on, with the S&P 500's heavyweight technology

sector falling sharply. Sahak Manuelian, managing

director for global equities trading at Wedbush Securities, said

investors were selling technology stocks and rotating into more

defensive sectors such as real estate, utilities

and healthcare.

"Today we tried to rally early and it was very, very

short-lived," said Manuelian, adding investors were shedding

stocks that had gained a lot and preparing for the highly

anticipated market debut of Elon Musk's SpaceX later this week.

"Investors are looking at their portfolios and seeing how much

tech has moved and then also coming to grips with the SpaceX

IPO, which is scheduled for this Friday, and probably have to

bookmark some dollars for that. They're trying to take some

profits off some of these other things that have run so much in

such a short period of time and probably looking to see where

they can chase alpha in other sectors of the market," he said.

INFLATION AND RATE WORRIES

Another worry is the scheduled release of consumer inflation

data, which is due out on Wednesday, according to Gene Goldman,

chief investment officer at Cetera, who sees inflation concerns

highlighting the Federal Reserve's next interest rate policy

moves.

"There is a lingering bit of caution as investors are a bit

worried about tomorrow's potentially high inflation readings.

Higher-than-expected inflation further brings the Fed to the

forefront as a headline risk," Goldman said.

Since the release on Friday of a stronger-than-expected jobs

report for May, traders have increased bets that the Fed will

hike rates, with the probability for a 25-basis-point increase

by December close to 43% and bets on a 50-basis-point increase

above 20%, up from 12% last week, according to CME Group's

FedWatch tool.

On Wall Street, at 1:49 p.m. ET (1749 GMT), the Dow Jones

Industrial Average fell 125.53 points, or 0.24%, to

50,662.70, the S&P 500 fell 81.16 points, or 1.10%, to

7,324.57 and the Nasdaq Composite fell 539.94 points, or

2.07%, to 25,391.55.

MSCI's gauge of stocks across the globe

fell 4.45 points, or 0.40%, to 1,096.51.

The pan-European STOXX 600 index finished down 0.5%

after rising earlier.

The CBOE volatility index, sometimes referred to as

Wall Street's fear gauge, was last up 1.49 points at 20.37 after

earlier hitting 23.34, which was its highest level since April

7.

In currencies, the dollar index, which measures the

greenback against a basket of currencies including the yen and

the euro, fell 0.12% to 99.92, with the euro up 0.11% at

$1.1547.

Against the Japanese yen, the dollar strengthened

0.08% to 160.3.

In cryptocurrencies, bitcoin fell 2.99% to

$61,576.95. Ethereum declined 2.97% to $1,639.16.

U.S. Treasury yields edged lower as traders waited for May's

consumer inflation report for signs of whether price pressures

are continuing to build.

The yield on benchmark U.S. 10-year notes fell

1.8 basis points to 4.532%, from 4.55% late on Monday. The

30-year bond yield fell 1.5 basis points to 5.0089%.

The 2-year note yield, which typically moves in

step with interest rate expectations for the Federal Reserve,

fell 3.1 basis points to 4.127%, from 4.158% late on Monday.

In energy markets, U.S. crude settled down 3.4%, or

,$3.10, at $88.20 a barrel. Brent was at $91.62 per

barrel, down 2.79% on the day.

In precious metals, gold prices fell, tracking a broader market

selloff on rising expectations of a U.S. interest rate hike this

year, while investor focus turned to the inflation data due

later this week.

Spot gold fell 1.68% to $4,255.99 an ounce while spot

silver fell 4.7% to $64.96 an ounce.