* Chip stocks tumble on TSMC's weak outlook
* P&G, Philip Morris weigh on consumer staples sector
* Financials gain as bond yields rise, American Express impresses
* Indexes down: Dow 0.48 pct, S&P 0.71 pct, Nasdaq 0.86 pct (Updates to late afternoon, adds commentary, changes byline, adds NEW YORK dateline)
By Sinéad Carew
NEW YORK April 19 (Reuters) - Wall Street's three major indexes declined on Thursday as tobacco stocks led a tumble in consumer staples and concerns about smartphone demand hurt the technology sector while rising bond yields and earnings helped financials rebound.
Cigarette giant Philip Morris International Inc was the biggest drag on the S&P after weaker than expected results, which also pulled down Altria.
A warning from Taiwan Semiconductor (TSMC), the world's largest contract chipmaker and an Apple Inc supplier, on soft demand for smartphones and on the industry's growth this year sparked a tumble in chip stocks and made Apple the S&P's second biggest weight.
Along with weak results from Philip Morris and Procter & Gamble, defensive sectors such as consumer staples were also hurt by a rise in U.S. 10-year Treasury yields, which helped bank stocks.
"It's an obsession with high interest rates right now," said Richard Sichel, senior investment strategist at The Philadelphia Trust Company. "The sectors really tell the story. Financials are up because they do better in a higher rate environment."
When yields are high, investors favor bonds over defensive sectors such as consumer staples and real estate, which promise high dividends and slow growth. But banks benefit as high interest rates can boost their profits.
At 2:57 p.m. ET, the Dow Jones Industrial Average fell 118.81 points, or 0.48 percent, to 24,629.26, the S&P 500 lost 19.2 points, or 0.71 percent, to 2,689.44 and the Nasdaq Composite dropped 62.93 points, or 0.86 percent, to 7,232.31.
The S&P consumer staples sector was the benchmark's biggest drag, down 3.3 percent, led by Philip Morris' 15.4-percent slide. Altria was down 6.5 percent.
Procter & Gamble shares were down 3 percent after it said shrinking retailer inventories and higher commodities and transportation costs squeezed its margins.
Apple shares fell 2.7 percent, with analysts telling Reuters that TSMC's warning was related to the iPhone maker. It was the biggest drag on the Dow Jones Industrial Average and the Nasdaq.
TSMC's U.S.-listed shares fell 6.4 percent, while the Philadelphia SE semiconductor index tumbled 4.3 percent.
A 1.3-percent rise in the S&P's financial sector, was supported by a 7.3 percent jump in American Express shares due to strong earnings as well as climbing yields.
But rising bond yields hurt homebuilders and the PHLX housing index was down 2.8 percent.
Of the 52 companies among the S&P 500 that have reported first-quarter earnings through Wednesday, 78.8 percent topped profit expectations, according to Thomson Reuters data.
Declining issues outnumbered advancing ones on the NYSE by a 2.51-to-1 ratio; on Nasdaq, a 1.73-to-1 ratio favored decliners.
The S&P 500 posted 23 new 52-week highs and 16 new lows; the Nasdaq Composite recorded 83 new highs and 47 new lows. (Additional reporting by Sruthi Shankar in Bengaluru, Caroline Valetkevitch in New York; Editing by Shounak Dasgupta and Nick Zieminski)