US STOCKS-Wall St slides over 1% as Treasury yields hover at 16-year peaks

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window.)

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All 11 S&P 500 sectors sink, utilities drop most

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Moody's warns government shutdown bad for U.S. credit

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U.S. sues Amazon.com (AMZN) for breaking antitrust law

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Indexes down: Dow 1.19%, S&P 500 1.4%, Nasdaq 1.48%

(Updates with mid-afternoon trading)

By Lewis Krauskopf, Ankika Biswas and Shashwat Chauhan

Sept 26 (Reuters) - Wall Street's main indexes sank over 1% on Tuesday as 10-year Treasury yields held their multi-year highs, with investors still wrestling with prospects for a long period of high interest rates and the economic fallout.

Adding to investor anxiety was the potential of a partial U.S. government shutdown by the weekend, which ratings agency Moody's warned would harm the country's credit.

Benchmark 10-year Treasury yields have climbed to 16-year highs in the wake of the Federal Reserve's hawkish longer-term rate outlook last week.

Yields may trend higher until Friday's personal consumption expenditures price index gives a fresh view of the inflation picture, said Jack Janasiewicz, portfolio manager at Natixis.

"The market is still trying to digest the potential for where that 10-year rate is going to finish," Janasiewicz said. "Until we get more clarity on where the 10-year settles, then the equity market is going to be pretty nervous."

The Dow Jones Industrial Average fell 403.54 points, or 1.19%, to 33,603.34, the S&P 500 lost 60.68 points, or 1.40%, to 4,276.76 and the Nasdaq Composite dropped 197.01 points, or 1.48%, to 13,074.31.

All 11 S&P 500 sectors were lower. Rate-sensitive utilities and real estate sank 2.2% and 1.7%, respectively, while the heavyweight tech sector dropped 1.8%.

Energy held up best among the sectors, down 0.5%, with crude prices above the $90-per-barrel mark. However, rising energy prices represent a renewed threat to inflation, which has generally been moving down toward the Fed's 2% target.

The S&P 500 has slumped nearly 7% since late July but remains up over 11% for 2023.

Megacap stocks that have propelled indexes higher this year were mainly dragging on Tuesday. Apple (AAPL) and Microsoft (MSFT) both fell about 2%.

Amazon.com (AMZN) shares dropped 3.4% as the U.S. Federal Trade Commission filed a long awaited antitrust lawsuit against the online retailer.

Investors later in the week also will have their eyes on other data including on durable goods and second-quarter gross domestic product, as well as remarks by Fed policymakers such as Chair Jerome Powell.

In company news, Immunovant (IMVT) shares doubled after early-stage data from the company's experimental antibody treatment exceeded analysts' expectations.

Declining issues outnumbered advancers by a 4.8-to-1 ratio on the NYSE. There were 33 new highs and 300 new lows on the NYSE.

On the Nasdaq, declining issues outnumbered advancers by a 1.8-to-1 ratio. The Nasdaq recorded 27 new highs and 308 new lows. (Reporting by Lewis Krauskopf in New York, Ankika Biswas and Shashwat Chauhan in Bengaluru; Editing by Maju Samuel and Richard Chang)