* Apple set to drop for third session on tariff worries
* Trade-sensitive Boeing, Caterpillar and chip stocks slide
* Tyson Foods rises after profit beats estimates
* Volatility index at near 3-month high
* Indexes drop: Dow 1.91%, S&P 2.02%, Nasdaq 2.67% (Updates to open)
By Medha Singh
Aug 5 (Reuters) - Wall Street's main indexes fell sharply on Monday, led by technology companies, as China's willingness to let the yuan slide in response to the latest U.S. tariff threat fanned fears that it could further aggravate an ongoing trade war.
China let the yuan breach the key 7-per-dollar level for the first time in more than a decade on Monday, and President Donald Trump slammed it as "a major violation".
Trump stunned financial markets last week by threatening to impose 10% tariffs on the remaining $300 billion of Chinese imports, abruptly abandoning a brief ceasefire.
"Trade continues to trend in the wrong direction. As in retaliation for new tariffs, China let the yuan move to a 10-year low versus the U.S. dollar," said Ryan Detrick, senior market strategist for LPL Financial in Charlotte, North Carolina.
"Any hopes of a quick resolution with China are fading quickly."
On Friday, the benchmark S&P 500 and the Nasdaq suffered their worst weekly performance of 2019, in a week that also saw the U.S. Federal Reserve's cut interest rates for the first time in a decade.
At 9:50 a.m. ET, the Dow Jones Industrial Average was down 505.65 points, or 1.91%, at 25,979.36, the S&P 500 was down 59.19 points, or 2.02%, at 2,872.86.
The Nasdaq Composite was down 213.46 points, or 2.67%, at 7,790.61.
All of the 11 major S&P sector were in the red. The S&P technology sector, heavily exposed by its chipmakers and other global technology players to Chinese markets, dropped 3.2%.
Apple Inc slid 4.1% as analysts expected the newly proposed tariffs to hurt demand for its flagship iPhone, while the Philadelphia chip index slipped 3.5%.
Industrial bellwethers Boeing Co and Caterpillar Inc shed more than 2%.
Signals from the bond market were also daunting as the inversion of the yield curve between the three-month Treasury bill and 10-year bonds grew to the widest since April 2007.
Interest-rate sensitive banks dropped 3%.
The CBOE Volatility index, a gauge of investor anxiety, rose to its highest level in about three months at 21.71 points.
The rest of the high-flying FAANG group also lost ground. Facebook Inc, Amazon.com Inc, Netflix Inc and Google-parent Alphabet Inc were down between 2.3% and 2.7%.
More than three quarters of S&P 500 companies have reported results so far, with about 74% topping analysts' expectations for profit, according to Refinitiv IBES data.
No.1 U.S. meat processor Tyson Foods Inc rose 4.7% after beating quarterly profit estimates.
Declining issues outnumbered advancers for a 7.11-to-1 ratio on the NYSE and for a 7.20-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and 19 new lows, while the Nasdaq recorded six new highs and 153 new lows. (Reporting by Medha Singh and Arjun Panchadar in Bengaluru; editing by Patrick Graham, Anil D'Silva and Sriraj Kalluvila)