* All major U.S. stock indexes on track for worst day in 3 weeks
* U.S. yields spike after retail sales point to inflation
* U.S., China still ‘very far apart’ on trade -U.S. ambassador
* Indexes down: Dow 0.86 pct, S&P 500 0.81 pct, Nasdaq 0.99 pct (Updates to late afternoon, changes dateline to New York, changes byline)
By Stephen Culp
May 15 (Reuters) - A surge in U.S. government bond yields to their highest level in almost 7 years sent Wall Street shares sliding on Tuesday after strong retail sales data stoked inflation concerns and investors fretted about looming trade talks between the United States and China.
All three major U.S. stock indexes were down nearly 1percent, on track to post their worst daily declines in three weeks.
Investors remain preoccupied by the run-up to high-level talks between China and the United States set to commence this week in Washington. U.S. ambassador to China Terry Branstad said the two countries remain “very far apart” regarding a tariff resolution, after which White House economic adviser Larry Kudlow told Politico he supports efforts to reach an agreement.
“In general terms, we have a trade skirmish not a trade war,” said Anthony Chan, Chase Chief Economist JP Morgan in New York. “Longer term, we believe these trade issues will be resolved but on a day-to-day basis they lead to some consternation from investors.”
U.S. retail sales increased at a moderate 0.3 percent in April as rising gasoline prices took a bite out of discretionary spending, according to the U.S. Commerce Department.
But core retail sales - which exclude gasoline, automobiles, building materials and food services - rose at a brisker 0.4 monthly pace over March, suggesting consumer spending is accelerating after its first quarter slowdown.
The yield on 10-year U.S. Treasury notes rose to its highest level since July 2011 on the news, raising expectations for further rate hikes from the Federal Reserve.
“It really tells you that there’s no justification at all for the Federal Reserve to slow down the growth pace, which tells you that maybe this hiking thing and long term yields is real,” Chan said.
At 2:28 p.m. ET, the Dow Jones Industrial Average fell 215.3 points, or 0.86 percent, to 24,684.11, the S&P 500 lost 22.13 points, or 0.81 percent, to 2,708 and the Nasdaq Composite dropped 73.69 points, or 0.99 percent, to 7,337.62.
The losses were broad based, with all 11 major S&P sectors in negative territory.
Home Depot Inc shares slipped 1.3 percent after the home improvement retailer missed sales forecasts as the long winter put a damper on demand for spring products.
Smaller rival Lowe’s was down 0.9 percent.
Declining issues outnumbered advancing ones on the NYSE by a 2.28-to-1 ratio; on Nasdaq, a 1.25-to-1 ratio favored decliners. (Reporting by Stephen Culp Editing by Nick Zieminski)