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US STOCKS-Nasdaq tumbles to correction territory after Powell comments

(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)

* Weekly jobless claims rise less than expected

* Nasdaq wipes out all gains in 2021

* Indexes: Dow -1.81%, S&P 500 -2.01%, Nasdaq -2.82% (Updates with afternoon trading)

By Noel Randewich

March 4 (Reuters) - Wall Street slumped on Thursday, leaving the Nasdaq down 10% from its February record high, after remarks from Federal Reserve Chair Jerome Powell disappointed investors worried about rising longer-term U.S. bond yields.

The benchmark 10-year Treasury yield spiked to 1.533% after Powell's comments, which did not point to changes in the Fed's asset purchases to tackle the recent jump in yields. It still held below last week's one-year high of 1.614%.

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Some investors had expected the Fed might step up purchases of long-term bonds, helping push down long-term interest rates.

"The market has been worried about the rise in long-term interest rates and the Fed chairman in his commentary didn't really push back towards this increase in rates and the market took it as a signal that yields could rise further, which is what has happened," said Scott Brown, chief economist at Raymond James in Florida.

Wall Street's fear gauge touched a near one-week high at 28.16 points.

The Nasdaq wiped out all of its year-to-date gains and was down about 10% from its record closing high on Feb. 12. If it closes at these levels, it would confirm the Nasdaq is in a correction.

In contrast, the Dow and S&P 500 have fallen about 5% from their February record highs.

Data showed the number of Americans filing for jobless benefits rose last week, likely boosted by brutal winter storms in the densely populated South, though the labor market outlook is improving amid declining new COVID-19 cases.

The crucial monthly payrolls report is expected on Friday.

Wall Street has been under pressure in recent sessions as a spike in U.S. bond yields pressured high-flying tech stocks. Stocks expected to thrive as the economy reopens outperformed in recent weeks due to expectations of a new round of fiscal aid and vaccinations.

The energy sector touched a one-year high on the back of higher oil prices.

Apple Inc, Tesla Inc and PayPal Holdings Inc were among the top drags on the S&P 500.

Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

"Valuations are at the high end of historic ranges, so you are seeing selling, especially in the higher valuation areas like the Nasdaq and tech general," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

In afternoon trading, the Dow Jones Industrial Average was down 1.81% at 30,704.19 points, while the S&P 500 lost 2.01% to 3,742.99.

The Nasdaq Composite dropped 2.82% to 12,631.74.

Declining issues outnumbered advancing ones on the NYSE by a 5.40-to-1 ratio; on Nasdaq, a 7.74-to-1 ratio favored decliners.

The S&P 500 posted 28 new 52-week highs and no new lows; the Nasdaq Composite recorded 169 new highs and 144 new lows.

(Reporting by Noel Randewich in Oakland, California; Additional reporting by Shashank Nayar and Nayar Medha Singh in Bengaluru; Editing by Maju Samuel and Lisa Shumaker)