GLOBAL MARKETS-Global shares drop, bond yields climb on inflation worries

* Global shares drop, S&P 500 falls around 1%, Europe's STOXX 600 down 1.5%

* Bond ​yields spike as ⁠inflation concerns return

* Oil prices climb

NEW YORK/LONDON, May 15 (Reuters) - ​Global equity indexes fell on Friday while bond yields soared as investor euphoria over tech stocks gave way to inflation fears and traders increased their bets that the Federal Reserve will hike interest rates this year. U.S. President Donald Trump left China ​on ‌Friday with no major breakthroughs on trade or tangible help from Beijing to end the Iran war. Uncertainty over a Middle East peace deal on Friday drove oil prices again, adding to concerns about inflationary pressures after two batches of high ⁠inflation readings for April earlier this week.

The S&P 500 and the Nasdaq sold off on Friday after climbing to ⁠closing records on strength in artificial intelligence-related technology stocks in the previous two sessions.

“There’s ​a realization that the market had gotten way ahead of itself. It wasn’t paying enough attention to what the bond market and economic data was telling it. It was caught up in this momentum AI trade,” said Kenny Polcari, chief market strategist at Slatestone Wealth.

"The market is finally paying attention to what the bond market and the economic data is telling it. Inflation remains sticky and is potentially going to move ​higher in the months ahead."

FALLS ‌ON WALL STREET On Wall Street at 10:52 a.m. (1452 GMT), the Dow Jones Industrial Average fell 432.76 points, or 0.86%, to 49,630.70, the S&P 500 fell 75.90 points, or 1.01%, to 7,425.34 and the Nasdaq Composite fell 387.22 points, or 1.45%, to 26,249.36.

MSCI's gauge of stocks across the globe fell 15.80 points, or 1.42%, to 1,100.26.

The pan-European STOXX 600 index fell 1.56%. Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.54% and Japan's Nikkei slid 1.99% after data showed wholesale inflation accelerated to 4.9% in April, the fastest pace in three years, keeping the Bank of Japan on track to raise rates.

In South ​Korea the Kospi index fell more than 6% on Friday after a run higher in recent months. It is still up 77.8% year-to-date.

GOVERNMENT BOND YIELDS SPIKE In government bonds, longer-dated U.S. Treasury yields climbed to their ‌highest levels in a year as elevated oil prices added to fears that ongoing energy disruptions in the Middle East could add to inflation. Concerns about inflation had already hit demand for U.S. Treasuries. Demand was weak at auctions this week.

The yield on benchmark U.S. 10-year notes ‌rose 11.6 basis points to 4.576%, from 4.459% late on Thursday while the 30-year bond yield rose 10.1 basis points to 5.1137%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 8.3 basis points to 4.075%, from 3.992% late on Thursday. In currencies, the dollar rose, placing it on track for its biggest weekly gain in more than two months, as the ​inflationary pressures drove bets on a Fed rate hike this year. Traders were last betting on a roughly 38% chance of a 25 basis point rate hike by year-end compared with with a less than 14% probability a week ago, according ‌to CME Group's FedWatch tool, which showed a 9.5% chance rates would be 50 basis points higher by year end.

Friday is Jerome Powell's last day as Fed Chair before he is replaced by Kevin Warsh. The incoming Chair was nominated by Trump, who has pressured Powell to cut interest rates.

“The market is going test Kevin Warsh. They’re going to press him to see what he really stands for,” Polcari said.

The ⁠dollar index, which ⁠measures the U.S. dollar against a basket of currencies including the yen and the euro, rose 0.32% to 99.26, with the euro down ‌0.39% at $1.1623.

Against the Japanese yen, the dollar strengthened 0.24% to 158.73.

Sterling hit a five-week low in its fifth straight day of losses and was last down 0.43% at $1.3341.

The pound had slid 0.9% on Thursday following the resignation of health minister Wes ​Streeting, deepening Britain's political crisis. On Friday, British housing minister Steve ​Reed urged Labour Party lawmakers to get behind Prime Minister Keir Starmer, saying nobody positioning to replace him had shown enough support to launch ‌a challenge.

In energy markets, U.S. crude rose 3.7% to $104.91 a barrel and Brent rose to $109.27 per barrel, up 3.34% on the day. Among precious metals, gold fell to a more than one-week low under pressure from the rising dollar and Treasury yields as well as the bets for higher interest rates.

Spot gold fell 2.21% to $4,546.93 an ounce. U.S. gold futures fell 3.29% to $4,524.30 an ounce. (Reporting by Sinéad Carew in New York, Sophie Kiderlin in London and Stella Qiu in Sydney. Editing by Sam Holmes, Mark Potter, Joe Bavier and Barbara Lewis)