* Spanish debt-insurance costs hits new high of 500 bps
* Banks lead drop: JPMorgan and Wells Fargo off over 2 pct
* S&P 500 on track for worst weekly percentage drop of 2012
* U.S. consumer sentiment slips in early April
* Dow off 0.4 pct, S&P down 0.6 pct, Nasdaq off 0.9 pct
By Angela Moon
NEW YORK, April 13 (Reuters) - Wall Street was on track to end the week lower on Friday as the rising cost of insuring Spanish debt against default increased worries about Europe's financial health, sparking a selloff in financial stocks.
In early afternoon trading, the S&P 500 was down 1.4 percent for the week so far - a drop that would represent the benchmark index's worst weekly percentage decline of the year - if the market closes at or near current levels.
The S&P financial sector index fell 1.7 percent despite earnings from JPMorgan Chase & Co and Wells Fargo & Co that beat Wall Street's expectations. JPMorgan shares slid 2.7 percent to $43.64. Wells Fargo shares fell 2.2 percent to $33.27.
"There are so many things playing into the decline today and although I am not turning bearish, I am telling our clients that they should take a more defensive stance," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab in Austin, Texas.
"The selloff really started with the weak unemployment report last week, and then moved on the Spain and Italy bond yields rising. I was surprised by yesterday's strong rally, which came largely on speculation about China's growth numbers."
The cost of insuring Spanish debt against default hit 500 basis points for the first time on Friday as fears about the high exposure of the country's banking sector to sovereign debt drove the price of credit default swaps higher.
Spanish banks borrowed a record 316.3 billion euros from the European Central Bank in March, data on Friday showed, and markets fear a lot of the funds have been placed in domestic sovereign debt.
Data showed the annual rate of growth in China's gross domestic product slowed to 8.1 percent in the first quarter - the weakest pace in nearly three years - from the fourth-quarter pace of 8.9 percent. The rate for the first three months of 2012 was below the consensus forecast of 8.3 percent.
The Dow Jones industrial average lost 52.22 points, or 0.40 percent, to 12,934.36. The Standard & Poor's 500 Index fell 8.87 points, or 0.64 percent, to 1,378.70. The Nasdaq Composite slid 27.96 points, or 0.92 percent, to 3,027.59.
Weighing on the Nasdaq , Apple Inc shares dropped 2.1 percent to $609.87.
In the previous two sessions of back-to-back gains, the S&P 500 added 2.1 percent as immediate concerns about rising yields in Spain and Italy ebbed and on bets that the Chinese GDP data would surprise on the upside.
In Friday's session, basic materials and energy shares dropped as copper and oil prices fell after the Chinese data. An S&P materials sector index shed 0.6 percent and an S&P energy sector index lost 0.9 percent.
Adding to concerns, two U.S. reports on Friday sent mixed signals to the Federal Reserve about how much room there might be to bolster economic growth.
The U.S. Consumer Price Index rose modestly in March among signs that a surge in gasoline costs was ebbing, but inflation still outpaced workers' earnings and threatened to undermine spending.
The Thomson Reuters/University of Michigan survey showed U.S. consumer sentiment slipping modestly in early April as higher gasoline prices hit household budgets even as optimism about the economic outlook lifted consumers' expectations.