US STOCKS-Trump's tariff threat on Mexico rattles Wall Street

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* Trump threatens tariffs on Mexico in surprise tweet
* Trade-sensitive industrials drop; U.S. automakers tumble
* U.S. Treasury yield curve inversion deepens
* All 11 major S&P sectors trading lower
* Indexes slide: Dow 1.16%, S&P 1.22%, Nasdaq 1.33%

(Updates to open)
By Shreyashi Sanyal
May 31 (Reuters) - U.S. stocks fell broadly on Friday, hit
by fears that President Donald Trump's shock threat of tariffs
on Mexico could prove the trigger that pushes the world's
largest economy into recession.
Washington will impose a 5% tariff from June 10, which would
then rise steadily to 25% until illegal immigration across the
southern border was stopped, Trump tweeted later on Thursday.
Mexican President Andres Manuel Lopez Obrador said he would
respond with "great prudence". "It is a very sticky situation," said Art Hogan, chief
market strategist at National Securities in New York.
"American companies needed to find supply chains outside of
China when it looked like the (U.S.-China) trade deal is going
to take much longer and one of those countries that was pointed
to outside the Pacific was Mexico."
Wall Street is on course for a fall of more than 6.5% in
May, its worst performance this year and the trigger for a flood
of money into the bond market that has encouraged expectations
of a U.S. recession.
U.S. Treasury yields fell to new multi-month lows, while the
yield curve, as measured in the gap between three-month
US3MT=RR and 10-year bond yields US10YT=RR , remained heavily
inverted. An inversion in the yield curve is seen by some as an
indicator that a recession is likely in one to two years. US/
The broader financial sector .SPSY was under pressure,
falling 1.29%, while bank stocks .SPXBK fell 1.50%.
Carmakers and manufacturers also bore the brunt of Trump's
Mexico threat. General Motors Co GM.N dropped 3.9% and Ford
Motor Co F.N 3.2%, pushing the consumer discretionary
.SPLRCD sector 1.46% lower.
At 9:46 a.m. ET the Dow Jones Industrial Average .DJI was
down 291.27 points, or 1.16%, at 24,878.61, the S&P 500 .SPX
was down 33.95 points, or 1.22%, at 2,754.91 and the Nasdaq
Composite .IXIC was down 100.31 points, or 1.33%, at 7,467.41.
Adding to risks was Beijing's warning on Friday that it
would unveil an unprecedented hit-list of "unreliable" foreign
firms, as a slate of retaliatory tariffs on imported U.S. goods
was set to kick in at midnight. Tariff-sensitive industrials .SPLRCI declined 1.37%, while
FAANG stocks - Facebook Inc FB.O , Apple Inc AAPL.O , Alphabet
Inc GOOGL.O , Netflix Inc NFLX.O and Amazon.com Inc AMZN.O
- fell between 0.8% and 2.6%.
Data showed U.S. consumer prices increased in April, which
could support the Federal Reserve's contention that recent low
inflation readings were transitory and allow the central bank to
keep interest rates unchanged for a while. other stocks, Gap Inc GPS.N tumbled 16%, the most
among S&P 500 companies, after the apparel retailer cut its 2019
profit forecast. Constellation Brands STZ.N , which has substantial brewery
operations in Mexico, slid 8.2%.
Declining issues outnumbered advancers for a 5.31-to-1 ratio
on the NYSE and a 5.28-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and 49 new
lows, while the Nasdaq recorded four new highs and 136 new lows.