* Yuan breaches key level, drawing criticism from Trump
* Technology shares lead broad sell-off
* Tyson Foods rises after profit beats estimates
* Indexes plummet: Dow 2.9%, S&P 2.98%, Nasdaq 3.47% (Updates with details on losses for S&P 500 in paragraph 2)
By April Joyner
NEW YORK, Aug 5 (Reuters) - Wall Street's major indexes posted their biggest percentage drop of the year on Monday, as a fall in the yuan following U.S. President Donald Trump's vow to impose additional tariffs on Chinese goods sparked fears of further escalation of the U.S.-China trade war.
While stocks pared losses in the last hour of trading to finish off their session lows, the benchmark S&P 500 fell about 3% to notch its biggest one-day percentage decline since Dec. 4. The decline amounted to a $766 billion paper loss for the index, according to Refinitiv data. The S&P 500 has fallen for six consecutive sessions and is now about 6% below its record closing high on July 26.
The yuan weakened past the seven-per-dollar level, its lowest in 11 years, after the People's Bank of China, with the blessing of policymakers, set its daily midpoint at the weakest level in eight months.
On Twitter, Trump called the action a "major violation" and "currency manipulation."
Several investors viewed the move in the yuan as a direct response to Trump's announcement of 10% tariffs on an additional $300 billion of Chinese imports.
"It's the escalation of the trade war," said Steven DeSanctis, equity strategist at Jefferies in New York. "The dollar strengthening presents another issue. For companies that do a lot of business outside the U.S., it all adds up."
A weaker yuan and a stronger dollar pose challenges for U.S. companies that do substantial business in China by effectively raising the cost of their goods for Chinese customers.
Adding to the tensions, China's Commerce Ministry said Chinese companies have stopped buying U.S. agricultural products and that China will not rule out imposing import tariffs on U.S. farm products that were bought after Aug. 3.
Shares of S&P 500 technology companies, which are heavily exposed to Chinese markets, dropped 4.1%.
Apple Inc shares slid 5.2% as analysts warned that the newly proposed tariffs may hurt demand for the iPhone, while the Philadelphia semiconductor index dropped 4.4%.
Stocks could slide further if there are no signs of improvement in U.S.-China trade relations before September, when the recently announced tariffs are to take effect, said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.
"There's a little bit of a vacuum in the market for the next several weeks," he said. "We're in this corrective phase, and it likely has further to go."
The Dow Jones Industrial Average fell 767.27 points, or 2.9%, to 25,717.74, the S&P 500 lost 87.31 points, or 2.98%, to 2,844.74 and the Nasdaq Composite dropped 278.03 points, or 3.47%, to 7,726.04.
The Cboe Volatility Index, an options-based gauge of investor anxiety, rose 6.98 points to 24.59, its highest in about seven months.
No. 1 U.S. meat processor Tyson Foods Inc provided one bright spot. Its shares rose 5.1% after the company beat quarterly profit estimates.
Declining issues outnumbered advancing ones on the NYSE by a 6.36-to-1 ratio; on Nasdaq, a 6.46-to-1 ratio favored decliners.
The S&P 500 posted three new 52-week highs and 32 new lows; the Nasdaq Composite recorded 13 new highs and 280 new lows.
Volume on U.S. exchanges was 9.41 billion shares, compared with the 6.8 billion average for the full session over the last 20 trading days. (Reporting by April Joyner; Additional reporting by Saqib Iqbal Ahmed and SinÃ©ad Carew in New York and Medha Singh and Arjun Panchadar in Bengaluru; Editing by Steve Orlofsky, Dan Grebler and Bill Berkrot)