(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window.) * Benchmark 10-year yields hit fresh 13-month peak * Rate-sensitive bank stocks climb * McDonald’s rises as DB raises rating, price target * Indexes: Dow up 0.22%, S&P 0.47%, Nasdaq off 1.22% (Updates to market open) March 17 (Reuters) - The S&P 500 and the Nasdaq dropped on Wednesday as U.S. bond yields spiked ahead of the Federal Reserve’s policy statement which could provide hints on whether the central bank would raise interest rates sooner than expected. The benchmark 10-year yield ticked up to a new 13-month high of 1.676%, denting demand for some high-growth technology stocks and pressuring the tech-heavy Nasdaq by about 1%. Fears that massive stimulus would overheat the economy has triggered a rapid spike in long-duration Treasury yields, derailing Wall Street’s main indexes from their peaks last month. The Fed is expected to issue a blowout GDP forecast for 2021 at the end of a two-day meeting on Wednesday at 2 p.m. ET (1800 GMT). The meet will be followed by Fed Chair Jerome Powell’s news conference, where he is likely to reassure the economy can take off without generating excessive inflation. While the Fed has reiterated it will remain dovish till the labor market fully recovers, some policymakers could hint at an increase in rates in 2023. Some investors and economists are betting on even earlier rate hikes, with Morgan Stanley predicting a tightening of monetary policy early next year. “I don’t think investors believe that the Fed is going to change its stance but there are fears for inflation to jump in the near term,” said Arthur Weise, chief investment officer at Kingsland Growth Advisors in New York. “Market is of the view that the 10-year yield could be higher and if the Fed signals anything that matches that view, we could yields jump past the 2% mark.” The S&P 500 and the Dow started off the week at all-time closing highs while the Nasdaq has recovered more than half of its losses since confirming a correction last week on optimism over the latest round of fiscal stimulus and vaccinations. At 9:43 a.m. ET, the Dow Jones Industrial Average rose 87.87 points, or 0.27%, to 32,913.82, the S&P 500 lost 16.59 points, or 0.42%, to 3,946.12 and the Nasdaq Composite lost 164.51 points, or 1.22%, to 13,307.06. Apple Inc, Facebook Inc, Netflix Inc and Microsoft Corp slipped between 0.6% and 1.2% in a continuation of a rotation out of high-flying companies into last year’s laggards including financials , industrials and materials. The banks index and airlines, expected to benefit from a reopening economy, added more than 1%. “The play is value ... as the economy picks up, there is a lot more leverage in earnings growth for cyclical companies,” said Eric Diton, president and managing director of the Wealth Alliance in New York. Fast-food retailer McDonald’s gained nearly 1.5% after Deutsche Bank raised its target price on the stock and also upgraded its recommendation to “buy” from “hold”. Declining issues outnumbered advancers by a 1.6-to-1 ratio on the NYSE and by a 2.9-to-1 ratio on the Nasdaq. The S&P 500 posted 13 new 52-week highs and no new low, while the Nasdaq recorded 41 new highs and 25 new lows. (Reporting by Shashank Nayar and Medha Singh in Bengaluru; Editing by Maju Samuel)