* AOL jumps to 15-month high on Verizon's $4.4 bln offer
* 10-yr U.S. Treasury prices turn positive
* Gap falls after first-qtr sales decline
* Indexes down: Dow 0.2 pct, S&P 0.3 pct, Nasdaq 0.4 pct (Adds details, changes comment, updates prices)
By Tanya Agrawal
May 12 (Reuters) - U.S. stocks pared most of their early losses on Tuesday after Treasury prices turned positive.
Stocks indexes had earlier fallen to their lowest in about a week, tracking European markets amid a global bond rout.
Ten-year U.S. Treasury yields, the benchmark for global borrowing costs, touched their highest since mid-November earlier in the day. Elevated U.S. yields mean higher borrowing costs, which can affect stock markets across the world.
Bonds have been the primary driver in the stocks market in recent days.
"You can't have a dramatic move in such a significant part of the capital market without creating ripples elsewhere," said Erik Davidson, chief investment officer at Wells Fargo Private Bank.
AOL shares jumped as much as 19.1 percent to $50.75, a 15-month high, after Verizon Communications said it would buy the company in a $4.4 billion deal, or $50 per share. Verizon slipped 0.7 percent to $49.43..
Nine of the 10 major S&P 500 sectors were down, with the materials index leading the declines with a 0.71 percent fall.
Dow Chemical Co was the biggest loser on the index with its shares down 1.4 percent. Dupont fell 1 percent.
The energy index was the only gainer as oil prices rose about 3 percent due to a weaker dollar and the conflict in Yemen.
At 12:03 p.m. ET (1603 GMT) the Dow Jones industrial average was down 43.21 points, or 0.24 percent, at 18,061.96; the S&P 500 was down 6.9 points, or 0.33 percent, at 2,098.43; and the Nasdaq Composite was down 20.10 points, or 0.4 percent, at 4,973.47.
With the U.S. earnings season winding down, investors are increasingly picking up cues from macroeconomic factors. Apart from the bond rout, Greece's precarious financial condition weighed on global stocks.
Pall Corp rose 18.4 percent to $18.43 after the Wall Street Journal reported the company was in the final stages of an auction to sell itself.
Gap fell 3.6 percent to $38.39 after the company reported comparable sales decline of 4 percent in the first quarter.
U.S. Federal budget numbers for April are expected to be released at 2 p.m. (1800 GMT)
Declining issues outnumbered advancing ones on the NYSE by 1,840 to 1,121, for a 1.64-to-1 ratio on the downside; on the Nasdaq, 1,663 issues fell and 939 advanced for a 1.77-to-1 ratio favoring decliners.
The S&P 500 index posted 3 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 36 new highs and 47 new lows. (Editing by Saumyadeb Chakrabarty)