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* Indexes drop: Dow 1.09%, S&P 0.70%, Nasdaq 0.31%
* U.S. 10-yr yields hit lowest levels since Oct 2016
* China's offshore yuan edges lower again
* Nine of 11 S&P sectors down; financials most hit (Adds details, updates prices)
By Medha Singh
Aug 7 (Reuters) - U.S. stocks slipped on Wednesday, as investors reeling from rising trade tensions fled riskier assets for perceived safer havens, leading the bond market to price in a slide into recession.
U.S. Treasury yields took another dramatic drop and the premium on three-month bill rates above 10-year note yields was at its most elevated levels since March 2007. This so-called inversion between the two maturities has preceded every U.S. recession in the past 50 years.
The drop in yields also reflected a jump in expectations that the Federal Reserve would cut key borrowing costs three more times by year-end, with markets fully pricing in a reduction in September.
"Whether the U.S. economy is strong enough to withstand the next phase of a trade war is giving people concern right now," said Mike Loewengart, vice-president of investment strategy at E*Trade Financial in New York.
"Then we add in what's at the disposal of the U.S. Federal Reserve, some begin to question whether that tool chest could be depleted much too quicker before we have even encountered a recession."
The central banks in New Zealand, India and Thailand on Wednesday cut rates amid fears that the trade war could hit global growth.
The concerns remerged after President Donald Trump last week threatened to slap 10% levies on the rest of $300 billion of Chinese imports.
The interest-rate sensitive S&P 500 banks sub-sector slipped 3.26%. The broader financial index dropped 2.21%, the most among nine of the 11 major S&P sectors trading lower.
The energy sector shed 1.65% as oil prices slid more than 3% on demand concerns.
At 11:08 a.m. ET, the Dow Jones Industrial Average was down 283.91 points, or 1.09%, at 25,745.61, easing from a near 600 points drop.
The S&P 500 was down 20.19 points, or 0.70%, at 2,861.58 while the Nasdaq Composite was down 24.61 points, or 0.31%, at 7,808.66.
China's offshore yuan dipped on Wednesday with the currency markets still on edge after China's central bank set its official reference rate at an 11-year low.
A partial recovery in the yuan on Tuesday and a softer rhetoric from the White House on trade had helped the S&P 500 and the Nasdaq break a six-day losing streak.
With the second-quarter earnings season winding down, about 73% of the 426 S&P 500 companies that have reported results so far have topped earnings estimates.
Walt Disney Co dropped 4.7% after its quarterly earnings missed analysts' forecast as the company invested heavily in its streaming platform and began folding in assets purchased from Twenty-First Century Fox.
CVS Health Corp rose 6.1% after the drugstore chain posted profit above estimates, boosted by strong sales in the Aetna health insurance business it acquired last year and raised its full-year earnings forecast.
Declining issues outnumbered advancers for a 2.31-to-1 ratio on the NYSE and for a 1.74-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 29 new lows, while the Nasdaq recorded 21 new highs and 156 new lows. (Reporting by Medha Singh and Arjun Panchadar in Bengaluru; Editing by Anil D'Silva and Sriraj Kalluvila)