Updates with afternoon trading levels

By Ragini Mathur and Utkarsh Hathi

May 18 (Reuters) - U.S. stock indexes extended losses on Monday, with the Nasdaq leading declines as semiconductor shares came under pressure, while surging Treasury yields and oil prices revived concerns that inflation and borrowing costs could remain elevated.

The 10-year Treasury yield US10YT=RR, the benchmark for global borrowing costs, was at 4.630%, having climbed to its highest level since February 2025 earlier in the session. US/

The bond-market selloff was fueled by a surge in oil prices, which has stoked concerns of inflation potentially keeping borrowing costs elevated as efforts to end the Iran war appeared to stall.

Oil prices LCOc1, CLc1 also moved higher, with Brent crude up 1.4%. Prices had briefly turned lower earlier in a volatile session after a report said the U.S. had proposed a temporary waiver on Iranian oil sanctions. Iranian officials did not immediately comment.

"Investors are looking at interest rates and oil and starting to question how much of an impact this is going to have," said Adam Turnquist, chief technical strategist at LPL Financial.

"On top of that, you've had a market that's rallied from March lows, so I think it's just the market taking a little bit of a breather and refocusing a little bit more on a complicated macro backdrop."

The heavyweight information technology sector .SPLRCT led declines on the S&P 500, with chip stocks among the biggest drags.

The Philadelphia SE Semiconductor index .SOX fell over 2%.

The gains in financial shares .SPSY helped limit losses on the Dow.

Wall Street had rallied sharply in recent weeks, with the benchmark S&P 500 .SPX and the Nasdaq .IXIC reaching record highs, as enthusiasm around artificial intelligence helped investors look past the inflationary threat from surging oil prices and the Iran war.

That rally, however, lost momentum on Friday as a rout in the bond market pushed yields higher.

Traders are now pricing in a more than 40% chance that the U.S. Federal Reserve will raise interest rates by at least 25 basis points in January, according to CME's FedWatch tool, after last week's hotter-than-expected inflation readings.

At 12:04 p.m. ET, the Dow Jones Industrial Average .DJI fell 46.27 points, or 0.09%, to 49,479.90, the S&P 500 .SPX lost 31.42 points, or 0.42%, to 7,377.08 and the Nasdaq Composite .IXIC lost 221.19 points, or 0.84%, to 26,003.96.

The world's most valuable company, Nvidia NVDA.O, is scheduled to report results on Wednesday.

Expectations are high for the company, whose shares have risen 36% from a March low, while the Philadelphia SE Semiconductor Index has surged more than 60% this year on strong demand for AI-related chips.

Walmart WMT.O, the largest retailer in the world, is also expected to report earnings this week, which could offer a clearer picture of how U.S. consumers are coping with higher energy prices and broader inflation pressures.

In other movers on the day, Dominion Energy D.N jumped 9.2% after power firm NextEra Energy NEE.N said it would buy the smaller utility in an all-stock deal valued at about $66.8 billion. NextEra's shares fell 5.8%.

Shares of Regeneron REGN.O tumbled 10.2% as the drugmaker's experimental treatment missed the main goal in a late-stage trial in patients with advanced melanoma, a type of skin cancer.

Advancing issues outnumbered decliners by a 1.27-to-1 ratio on the NYSE, and by a 1.18-to-1 ratio on the Nasdaq.

The S&P 500 posted 20 new 52-week highs and 12 new lows, while the Nasdaq Composite recorded 59 new highs and 137 new lows.