* Traders firm up rate hike bets, bond yields rise further
* Record profit boosts Amazon; Apple, Alphabet drop on results
* Volatility index rises for first time in three days
* Indexes lower: Dow 1.28 pct, S&P 0.94 pct, Nasdaq 0.77 pct (Updates to early afternoon)
By Tanya Agrawal
Feb 2 (Reuters) - The S&P and the Dow were headed for their worst week in two years on Friday, as robust U.S. jobs data pushed up bond yields further and boosted chances of more interest rate hikes this year.
The Dow Jones Industrial Average dropped more than 400 points, with 10 of the 11 major S&P sectors in the red, led by the energy index’s 3.49 percent fall.
Nonfarm payrolls rose by 200,000 jobs in January, the Labor Department said, beating expectation of 180,000. Average hourly earnings rose and boosted the year-on-year increase to 2.9 percent, the largest rise since June 2009.
After the data, benchmark 10-year Treasury yields extended their rise to more than 2.8 percent, while traders boosted bets that the U.S. Federal Reserve will raise interest rates three times this year.
Fast-rising wages could prompt more aggressive action from the central bank to keep a lid on inflation pressure.
“The big picture concern is that wage growth will pick up and lead to more inflation,” said Nicholas Colas, co-founder at DataTrek Research.
The rise in bond yields “is certainly beginning to concern the markets. It is certainly now an issue, where it wasn’t for all of last year. Rates have risen fairly quickly this year and the speed of the advance is worrying.”
At 12:30 p.m. ET (1730 GMT), the Dow Jones Industrial Average was down 335.43 points, or 1.28 percent, at down 218.19 points, or 0.83 percent, at 25,851.28, the S&P 500 was down 26.65 points, or 0.94 percent, at 2,795.33.
The Nasdaq Composite was down 56.90 points, or 0.77 percent, at 7,328.97.
The CBOE Volatility Index, the most widely followed gauge measure of stock market volatility, rose to 14.99, after having fallen in the previous two sessions.
Adding to the pressure were disappointing earnings reports from major companies.
Shares of oil majors Exxon and Chevron were down 5.6 percent and 3.4 percent, respectively, after reporting lower-than-expected quarterly profits.
Google-parent Alphabet fell 5.3 percent after its profit also misses analysts’ estimates.
Apple fell 2.9 percent as investors focused on the company’s muted forecast rather than strong iPhone prices and its cash plans.
One bright spot was Amazon, which rose 5.4 percent after the online retailer reported a record profit of about $2 billion due to strong sales and tax law changes.
Declining issues outnumbered advancers on the NYSE by 2,504 to 432. On the Nasdaq, 2,237 issues fell and 672 advanced.
The S&P 500 index showed 18 new 52-week highs and 18 new lows, while the Nasdaq recorded 42 new highs and 95 new lows. (Reporting by Tanya Agrawal in Bengaluru; Editing by Savio D’Souza and Anil D’Silva)