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* U.S. trade deficit narrows sharply as exports rebound
* Lennar, KB Home shares gain
* Dow up 0.01 pct, S&P 500 down 0.3 pct, Nasdaq down 0.5 pct (Updates to late afternoon)
By Caroline Valetkevitch
NEW YORK, March 27 (Reuters) - The S&P 500 and Nasdaq fell on Wednesday as U.S. bond yields fell again and a prolonged inversion in the yield curve fanned growth worries.
Benchmark 10-year Treasury yields slid on Wednesday, but came off 15-month lows reached overnight as investors remained focused on central bank dovishness globally.
The yield curve inverted for the first time since 2007 on Friday and if the inversion continues to persist it could indicate that a recession is likely in one to two years.
Interest-rate sensitive financial stocks were down, with the S&P 500 financial index falling 0.3 percent.
“The inverted yield curve, that’s what worries investors and it’s why you’re getting selling here. It’s definitely a slowing economy indicator, and whether it goes into a recession or not, nobody really knows. But it will put a pause in the market,” said Alan Lancz, president, Alan B. Lancz & Associates Inc, an investment advisory firm, based in Toledo, Ohio.
Investors have been fretting about slowing economic growth since last week after the Federal Reserve did a stunning about-turn on rate hikes and dour factory data from the United States, Europe and Japan.
The European Central Bank became the latest central bank to delay a planned increase in rates amid rising threats to growth.
The Dow Jones Industrial Average rose 1.82 points, or 0.01 percent, to 25,659.55, the S&P 500 lost 8.36 points, or 0.30 percent, to 2,810.1 and the Nasdaq Composite dropped 37.73 points, or 0.49 percent, to 7,653.80.
Not all data was bleak. A Commerce Department report showed that U.S. trade deficit dropped more than expected in January, likely as Chinese purchases of soybeans spurred a rebound in exports after three straight monthly declines.
Lennar Corp rose 3.1 percent as the No.2 U.S. homebuilder said it expected the housing market to improve, while shares of KB Home, which reported upbeat results late Tuesday, were up 1.7 percent.
Also helping was a survey that showed mortgage applications in the week ended March 22 rose nearly 9 percent amid lower interest rates, according to the Mortgage Bankers Association.
Centene Corp’s shares fell 6.2 percent after the health insurer said it would buy smaller rival WellCare Health Plans Inc for $15.27 billion. Shares of WellCare jumped 11 percent.
Declining issues outnumbered advancing ones on the NYSE by a 1.23-to-1 ratio; on Nasdaq, a 1.45-to-1 ratio favored decliners.
The S&P 500 posted 29 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 26 new highs and 60 new lows. (Reporting by Caroline Valetkevitch Editing by Phil Berlowitz)