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* U.S. 10-year yields fall
* Disney drops after earnings miss
* Indexes up: Dow 0.05%, S&P 0.24%, Nasdaq 0.49% (Updates to late afternoon; changes dateline, byline)
By Caroline Valetkevitch
NEW YORK, Aug 7 (Reuters) - The S&P 500 recovered from steep early losses to trade modestly higher by late afternoon on Wednesday as investors snapped up oversold shares, although signals from the bond market of a higher risk of recession kept a lid on gains.
"As we've cut the losses in half by lunch and continued to move higher, it's become a matter of buyers remaining interested in continuing to buy stocks that they feel have been oversold and a lack of sellers' supply," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Trading was choppy, however, and focus remained on interest rates.
U.S. Treasury yields tumbled, with 30-year yields approaching record lows, on increasing worries over a global economic downturn and bets the Federal Reserve will have to pick up its pace of interest rate cuts to counter growing recession risks.
Financials have been the biggest loser among S&P 500 sectors, down about 1.5%.
Interest rates futures suggested traders are building bets the Fed will cut interest rates three more times by year-end.
The premium on three-month Treasury bill rates over 10-year Treasury yields, a closely watched U.S. recession indicator, was at its most elevated levels since March 2007.
The Dow Jones Industrial Average rose 12.13 points, or 0.05%, to 26,041.65, the S&P 500 gained 6.79 points, or 0.24%, to 2,888.56, and the Nasdaq Composite added 38.21 points, or 0.49%, to 7,871.48.
Central banks in New Zealand, India and Thailand on Wednesday cut their lending rates amid growing fears that the U.S.-China trade war could aggravate a slowdown in the global economy.
Trade concerns remerged after President Donald Trump last week threatened to slap 10% levies on the rest of $300 billion of Chinese imports and called China a currency manipulator on Monday. The energy sector was down more than 1% after oil prices slid while real estate was up the most of any S&P sector.
Declining issues outnumbered advancing ones on the NYSE by a 1.10-to-1 ratio; on Nasdaq, a 1.01-to-1 ratio favored advancers.
The S&P 500 posted 17 new 52-week highs and 31 new lows; the Nasdaq Composite recorded 37 new highs and 202 new lows. (Reporting by Caroline Valetkevitch in New York Additional reporting by Medha Singh and Arjun Panchadar in Bengaluru; Editing by Leslie Adler)