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* Huawei CFO arrest seen escalating U.S-China trade tensions
* All 11 major S&P sectors drop, with financials biggest drag
* Financials hit by drop in bond yields and rate hike bets
* Lower oil prices hit energy stocks; VIX at highest since Oct 30Indexes drop: Dow 3.10 pct, S&P 2.88 pct, Nasdaq 2.41 pct (Adds comments, updates prices)
By Shreyashi Sanyal
Dec 6 (Reuters) - The S&P 500 and the Dow Jones Industrial Average slipped back into losses for the year on Thursday as U.S. stocks slid on mounting worries of slowing global growth after a fresh twist in China-U.S. tensions as well as falling oil prices and U.S. bond yields.
The Dow sank more than 3 percent, or over 750 points, while the S&P and the Nasdaq shed roughly 2.5 percent, adding to a more than 3 percent tumble for the three indexes on Tuesday.
Canada arrested Chinese smartphone maker Huawei Technologies Co Ltd's chief financial officer for extradition to the United States, casting fresh doubts over the prospect of Beijing and Washington striking a deal on trade tariffs in their 90-day truce period.
"Disappointment in the China agreement and the arrest of Huawei CFO is on everybody's mind today and it puts a damper in the trade talks," said Larry Benedict, founder of Opportunistic Trader in Boca Raton, Florida.
Optimism after the trade truce over the weekend boosted Wall Street on Monday, extending a rally from last week when the Federal Reserve signaled the pace of rate increases could slow.
But that optimism faded on Tuesday and, along with a drop in longer-dated U.S Treasury yields, sent the S&P to its biggest single-day percentage drop in about two months.
The drop continued Thursday – the U.S. market was closed on Wednesday – as bond yields and oil prices both slid.
Benchmark 10-year Treasury yield held at three-month lows as traders scaled back bets on the number of rate hikes after data showed the U.S. trade deficit hit a 10-year high in October and that the pace of job growth was moderating.
Crude oil prices fell after an OPEC meeting in Vienna over production policy ended without a decision. Earlier the OPEC signaled it may agree to a smaller cut than expected.
All the 11 major S&P sectors were in the red. Technology fell 2.28, energy retreated 3.43 percent, while the trade-sensitive industrials fell 2.85 percent.
But the biggest drag on the markets was a 3.53 percent-slump in financials as bond yields fell and bets of a rate hike were pushed lower.
"If markets keep going down then the Fed is not going to (raises rates)," Benedict said.
At 11:27 a.m. ET, the Dow was down 776.45 points, or 3.10 percent, at 24,250.62, the S&P 500 was down 77.81 points, or 2.88 percent, at 2,622.25 and the Nasdaq Composite was down 172.30 points, or 2.41 percent, at 6,986.12.
The CBOE Volatility Index, the most widely followed barometer of expected near-term volatility for the S&P, jumped to its highest since Oct. 30.
Apple Inc fell 3.1 percent and was the biggest drag on the S&P and the Nasdaq, while trade bellwether Boeing Co's 6.6 percent decline weighed the most on the Dow.
Declining issues outnumbered advancers for a 5.70-to-1 ratio on the NYSE and a 3.34-to-1 ratio on the Nasdaq.
The S&P recorded two new 52-week highs and 68 new lows. The Nasdaq showed seven new highs and 311 new lows. (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Saumyadeb Chakrabarty)