* Financials rise as 10-yr yields hit 7-yr high
* CBOE volatility index at over three-week high
* Dow down 0.89 pct, S&P 500 down 0.94 pct, Nasdaq down 1.85 pct (Updates to mid-afternoon, changes byline)
By Chuck Mikolajczak
NEW YORK, Oct 4 (Reuters) - Wall Street stocks dropped on Thursday as U.S. Treasury yields continued their ascent to multi-year highs on another round of strong economic data, increasing concerns for accelerating inflation.
The Dow was poised for its first decline in six sessions, while both the S&P and Nasdaq were on pace for their worst day since late June.
The yield on the benchmark 10-year Treasury note climbed to a seven-year high of 3.23 percent on Wednesday as data on the labor market and factory orders was the latest in a round of strong economic reports this week, putting the focus squarely on Friday's payrolls report for September.
"Over the last five years if I gave you the number a month, a week, a day in advance, you probably still couldn’t make money off of it because we knew what policy would be," said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
"What is interesting here is now you are seeing rates start to move; the more rates move the more important that number becomes."
Financials, up 0.65 percent, were one of the few bright spots on Wall Street. More specifically, the banks gained 0.78 percent as they typically benefit from rising rates.
The data follows comments this week from several Federal Reserve officials, including Chairman Jerome Powell, that underscored the strength of the economy.
Shortly after 3 p.m. ET, the Dow Jones Industrial Average fell 212.47 points, or 0.79 percent, to 26,615.92, the S&P 500 lost 30.28 points, or 1.04 percent, to 2,895.23 and the Nasdaq Composite dropped 155.51 points, or 1.94 percent, to 7,869.58.
Heavyweight names Apple, down 1.76 percent, and Amazon, off 2.31 percent, were among the biggest drags on the S&P as both companies denied a Bloomberg report their systems had been infiltrated by malicious computer chips inserted by Chinese intelligence.
Market participants will be looking closely for signs of wage growth in Friday's jobs number, especially in light of anecdotal indications of rising wages such as Amazon.com raising its minimum wage to $15 earlier this week.
Despite the pullback, U.S. stocks remain near record levels, raising some concern about valuations with the next earnings season just around the corner.
Among gainers, Constellation Brands rose 4.88 percent after the Corona beer maker raised its full-year profit forecast and topped Wall Street's estimates for second-quarter sales and profit.
Eli Lilly shares gained 3.59 percent after the company's experimental diabetes drug showed promise in a mid-stage trial.
Declining issues outnumbered advancing ones on the NYSE by a 4.18-to-1 ratio; on Nasdaq, a 3.19-to-1 ratio favored decliners.
The S&P 500 posted 8 new 52-week highs and 18 new lows; the Nasdaq Composite recorded 21 new highs and 90 new lows. (Reporting by Chuck Mikolajczak; Editing by Dan Grebler)