* Apple up 1 pct, biggest boost to Dow, S&P and Nasdaq
* Financials weigh as yuan rise clouds US rate hike timing
* CBOE volatility index jumps to one-month high
* Alibaba falls to record low as revenue growth slows
* Indexes down: Dow 0.9 pct, S&P 0.8 pct, Nasdaq 0.9 pct (Updates to early afternoon)
By Tanya Agrawal
Aug 12 (Reuters) - U.S. stocks were off session lows in afternoon trading on Wednesday, but stayed sharply lower, as the continued decline in the yuan exacerbated fears about a global economic slowdown.
Apple, for whom China is key growth market, fell 3.4 percent earlier in the session, before reversing course to trade up 1 percent to $114.64.
The stock gave the biggest boost to the Dow, S&P 500 and the Nasdaq, helping the U.S. markets cut their losses.
Still, eight of the 10 major S&P 500 sectors were lower. The financial index's 1.6 percent fall led the decliners, on speculation that the yuan's devaluation might push the Federal Reserve to hold off until December to raise interest rates.
JPMorgan's 2.5 percent fall weighed the most on the index, while Bank of America and Citigroup also fell more than 2 percent.
The Dow fell to a six-month low earlier in the day, while the Nasdaq and the S&P hit a one-month low in a broad decline, with the S&P even briefly turning negative for the year.
The CBOE Volatility index, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500, jumped as much as 18.7 percent to 16.28, its highest level in a month.
The "fear index" is on track for the largest two-day move since mid-July.
"I think the market is already in correction territory on an internal level," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
"The average S&P 500 stock has already fallen about 10 percent below its 52-day average and if we were waiting for a big enough catalyst for the indexes to correct, then China is certainly big enough."
At 12:49 p.m. ET (1649 GMT) the Dow Jones industrial average was down 153.8 points, or 0.88 percent, at 17,249.04.
The S&P 500 was down 16.78 points, or 0.81 percent, at 2,067.29 and the Nasdaq composite was down 46.94 points, or 0.93 percent, at 4,989.85.
The yuan hit a four-year low on Wednesday, falling for a second day after Chinese authorities devalued it.
The devaluation has huge implications for demand in the rest of the world and commodity prices, but it is too early to judge what is happening with the Chinese currency policy, New York Fed President William Dudley said.
Dudley said the Fed was nearing a rate hike, but did not say when it would move.
"The PBOC action marginally lowers the odds of Fed liftoff in September, in our view, and December liftoff remains our call," Goldman Sachs said in a note.
A decline in U.S. overnight indexed swap rates indicated the probability of a rate hike next month faded to less than 40 percent, from an above 50 percent probability after last week's solid U.S. jobs data.
In corporate news, Alibaba fell as much as 8.2 percent to an all-time low of $71.03 after the retailer's revenue growth slowed. Yahoo, which has a 15 percent stake in Alibaba, fell 5.3 percent to $34.1.
Macy's fell 5.5 percent to $63.82 after it also reported weak quarterly sales.
Declining issues outnumbered advancers on the NYSE by 2,065 to 941. On the Nasdaq, 1,905 issues fell and 811 advanced.
The S&P 500 index showed three new 52-week highs and 19 new lows, while the Nasdaq recorded 19 new highs and 112 new lows. (Reporting by Tanya Agrawal in Bengaluru; Editing by Savio D'Souza)