US STOCKS-Wall St slips as Middle East uncertainty lifts oil; Trump-Xi talks in focus

By Johann M Cherian and Avinash P

Sept 24 (Reuters) - Wall Street's main indexes dropped on Thursday as uncertainty over prospects for a resolution to the Middle East conflict lifted oil prices and Treasury yields, keeping risk appetite in check ahead of a keenly watched US-China summit.

US and Iran leaders exchanged barbs at the UN General Assembly this week, which sent Brent crude prices back to above $100 a barrel. A potential ban of US diesel exports added to investor caution.

Technology stocks .SPLRCT led declines on the S&P 500, with chipmakers such as Nvidia NVDA.O, Broadcom AVGO.O and Micron MU.O slipping over 1% each.

Oracle ORCL.N lost 5.5% after a report said the company sent a 'force majeure' notice to a New Mexico data center. Shares of Blue Owl OWL.N, the project's developer, also fell 5%.

A rise in Treasury yields, with that on the 30-year Treasury bond reaching its highest since 2004, pressured riskier assets as the market priced in the likelihood of a long war and higher borrowing costs.

Faith in the AI trade, which powered the Nasdaq .IXIC to record highs earlier this week, has limited losses among riskier assets, analysts said.

"People were maybe less willing to chase stocks, but they didn't seem particularly eager to sell them," said Steve Sosnick, chief market analyst at Interactive Brokers.

At 9:48 a.m. ET, the Dow Jones Industrial Average .DJI was down 208.36 points, or 0.40%, at 51,303.23; the S&P 500 .SPX lost 24.04 points, or 0.30%, to 7,681.99 and the Nasdaq Composite .IXIC fell 159.54 points, or 0.58%, to 26,778.64.

Six of the 11 sectors on the benchmark index were trading lower, while the energy sector .SPNY gained 1%.

The CBOE Volatility Index .VIX, sometimes referred to as Wall Street's fear gauge, climbed to a one-week top of 15.7 points.

The spotlight is expected to turn next towards the summit, with investors anticipating discussions around AI regulation, the Middle East conflict and Taiwan. Executives from top US companies are also expected to meet Trump and Xi. US Treasury Secretary Scott Bessent, meanwhile, said on Wednesday that the two superpowers have agreed to extend their truce until January 10.

Higher energy costs and recent data suggesting strong business activity led investors to bet on further interest rate increases by the Federal Reserve. They now see a 71% chance of at least a 25-basis-point hike next month — up from around 50% a day ago — the CME Group's FedWatch Tool showed.

New York Fed President John Williams, who has a vote on the Federal Open Market Committee, underlined those expectations. It was reasonable to think that rates might need to be raised again this year, he said.

Weekly jobless claims fell last week, pointing to a firming labor market.

Meta Platforms META.O, which has been in focus for its Muse consumer AI agent, on Wednesday launched Charm, a handheld gadget for using Muse. The social media giant's shares climbed 1.1%.

Among other movers, MGM Resorts MGM.N slumped 10% after media mogul Barry Diller's People Inc PPLI.O withdrew its proposal to purchase the casino operator.

Declining issues outnumbered advancers by a 1.84-to-1 ratio on the NYSE and by a 1.73-to-1 ratio on the Nasdaq.

The S&P 500 posted seven new 52-week highs and 20 new lows while the Nasdaq Composite recorded 17 new highs and 103 new lows.