* Wells Fargo falls after Fed's unprecedented action
* Qualcomm falls on report of Apple dumping co in favor of Intel
* Indexes down: Dow 0.90 pct, S&P 0.72 pct, Nasdaq 0.42 pct
(Updates to early afternoon)
By Tanya Agrawal
Feb 5 (Reuters) - U.S. stocks were trading lower in early afternoon on Monday as bond yields continued to hover near multi-year highs and losses in energy and financial stocks weighed.
The S&P energy index led the decliners among the 11 major S&P sectors, with a 2.03 percent fall. Exxon's 4.1 percent fall weighed the most on the Dow and was the second biggest drag on the S&P.
Oil prices neared their lowest in a month as rising U.S. output and a weaker physical market added to the pressure from a widespread decline across equities and commodities. Wells Fargo fell 8.1 percent after the Federal Reserve imposed new regulatory restrictions over compliance issues.
The fall weighed on other bank stocks with Bank of America , Goldman Sachs and Citigroup down about 1 percent. Wall Street has been under pressure from rising bond yields, which led to the S&P 500 and the Dow seeing their worst weeks since early January 2016 while the Nasdaq recorded its worst week since early Feb 2016, last week.
Benchmark 10-year note yield surged to 2.885 percent overnight on Monday, the highest since January 2014, but fell back to 2.841 percent in morning trading.
A rise in bond yields means higher borrowing cost for companies and an alternative investment option for traders.
"I think what's happening right now can be compared to early 2016 where we saw a pullback that was confidence related rather than fundamental and we saw it reverse fairly quickly," said Brad McMillan, chief investment officer for Commonwealth Financial.
"Seeing the 10-year break multi-year highs and the fact that it happened quickly made the market realize there are some real risks out there."
At 12:34 p.m. ET (1734 GMT), the Dow Jones Industrial Average was down 230.59 points, or 0.9 percent, at 25,290.37, the S&P 500 was down 19.93 points, or 0.72 percent, at 2,742.20.
The Nasdaq Composite was down 30.54 points, or 0.42 percent, at 7,210.40.
Friday's U.S. payrolls report showed wages growing at their fastest pace in more than eight years, fueling concerns that both inflation and interest rates would rise faster than expected.
Currently, traders are pricing in three rate hikes for 2018, but if the economy and corporate earnings continue to improve, the chances of a fourth increase becomes more likely.
Among other stocks, Qualcomm fell 4.3 percent after KGI Securities said Apple might drop the chipmaker in favor of Intel as the supplier for modem chips in its next generation of iPhones. Shares of Intel rose 1.1 percent.
Declining issues outnumbered advancers on the NYSE by 2,101 to 826. On the Nasdaq, 1,993 issues fell and 889 advanced.
The S&P 500 index showed 1 new 52-week high and 7 new lows, while the Nasdaq recorded 17 new highs and 100 new lows.
(Reporting by Tanya Agrawal; Editing by Arun Koyyur)
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