Wall St. cuts losses as global bond worries weigh

By Noel Randewich

(Reuters) - U.S. stocks recovered losses to trade near flat on Tuesday afternoon as a recent run-up in global bond yields unsettled investors already concerned about an eventual Federal Reserve interest rate hike.

Stocks indexes had earlier fallen to their lowest in about a week but bounced back after Treasury yields ticked down slightly from six-month highs.

The recent, unexpected leap in yields on U.S. Treasuries and the Germany Bund has been a thorn in the side of U.S. stock investors for several days.

"In the short term, the market is a hostage to interest rates, said Jim Awad, managing director at Plimsoll Mark Capital. "To the extent you have an increase in interest rates that the Fed doesn't control, you're getting an unwanted tightening in the financial markets."

Benchmark ten-year U.S. Treasury yields touched their highest since mid-November earlier before coming down slightly. Elevated U.S. yields mean higher borrowing costs, which can make it harder for companies to expand.

That rise in borrowing costs comes as investors attempt to gauge when the Fed will deem the U.S. economy strong enough to begin raising its own interest rate for the first time since 2006.

At 2:50 p.m., the Dow Jones industrial average rose 5.67 points, or 0.03 percent, to 18,110.84, the S&P 500 lost 1.19 points, or 0.06 percent, to 2,104.14 and the Nasdaq Composite dropped 1.95 points, or 0.04 percent, to 4,991.63.

AOL shares jumped as much as 19.1 percent to $50.75, a 15-month high, after Verizon Communications said it would buy the company in a $4.4 billion deal, or $50 per share. Verizon was down 0.22 percent..

Google , the biggest contributor to losses on the Nasdaq, was down 1.34 percent.

Five of the 10 major S&P 500 sectors were down, with the materials index <.SPLRCM> leading the declines with a 0.79 percent fall.

The S&P energy index <.SPNY> gained 0.53 percent as oil prices rose about 3 percent due to a weaker dollar and the conflict in Yemen.

Pall Corp rose 18.68 percent after the Wall Street Journal reported the water and air filter maker was in the final stages of an auction to sell itself.

Declining issues outnumbered advancing ones on the NYSE by 1,604 to 1,396, for a 1.15-to-1 ratio on the downside; on the Nasdaq, 1,441 issues fell and 1,272 advanced for a 1.13-to-1 ratio favouring decliners.

The benchmark S&P 500 index was posting 4 new 52-week highs and 6 new lows; the Nasdaq Composite was recording 54 new highs and 56 new lows.

(Editing by Meredith Mazzilli and Nick Zieminski)