* US retail sales beat expectations in December

* Tesla cuts Model Y prices in Germany after China price cuts

* Spirit Airlines dips after US judge blocks merger with JetBlue

* S&P 500 -0.91%, Nasdaq -1.16%, Dow -0.48%

Jan 17 (Reuters) - Wall Street stocks fell sharply on Wednesday after upbeat December U.S. retail sales data eroded expectations the Federal Reserve will kick off its rate-cut campaign as early as March.

The benchmark S&P 500 fell to an over one-week low, while the blue-chip Dow dropped to a near one-month low.

Megacap stocks weighed on the market, with Amazon, Nvidia and Alphabet each down more than 1% as the 10-year Treasury yield rose to over 4.1% - its highest this year.

Tesla dropped 3.4% after the electric-vehicle maker slashed prices of its Model Y cars in Germany, a week after reducing prices for some China models.

The interest rate-sensitive S&P 500 real estate sector index tumbled 2.7% to a one-month low.

Data showed discounts from retailers and increased motor-vehicle purchases supported a higher-than-expected rise in U.S. retail sales, keeping the economy on a solid footing in 2024.

That reinforced the view that the Fed may not cut rates as quickly as previously expected this year.

Traders' expectations of a 25-basis-point Fed rate in March dipped to 55%, from around 60% before the data was released.

U.S. stocks in recent weeks have relinquished some gains from a strong final two months of 2023.

"People's positions are moderating from 'all positive' to 'there's still a lot of uncertainty out there,'" said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta.

He cited Fed officials who have recently downplayed expectations of a quick start to rate cuts, and mixed economic data.

The CBOE Market Volatility Index, a market fear gauge, rose to an over two-month high of 15.37 points during the day.

The S&P 500 remains down about 1% from its record high close in January 2022.

U.S. economic activity slowed from late October through mid-November, while businesses reported inflation largely moderating and easier hiring for jobs, the Fed said in its "Beige Book" report on Wednesday.

Morgan Stanley fell 2.2% after analysts cut their ratings and price targets in the wake of the bank's fourth-quarter earnings. Bank of America and Citigroup each lost over 1%.

The S&P 500 was down 0.91% at 4,722.52 points.

The Nasdaq Composite Index declined 1.16% to 14,771.72 points, while the Dow Jones Industrial Average was down 0.48% at 37,180.48 points.

The small-cap Russell 2000 index dropped 1.3% to a one-month low.

Charles Schwab dropped 1.2% after its fourth-quarter profit fell 47%.

Spirit Airlines nosedived 24%, extending steep losses on Tuesday after a U.S. judge blocked JetBlue from acquiring the carrier.

Ford Motor lost 2.3% after UBS downgraded the stock to "neutral" from "buy."

Boeing gained 1.1% after the Federal Aviation Administration said inspections of an initial group of 737 MAX 9 airplanes had been completed.

Declining stocks outnumbered rising ones within the S&P 500 by a 5.5-to-one ratio.

The S&P 500 posted 23 new highs and five new lows; the Nasdaq recorded 41 new highs and 199 new lows.

(Reporting by Noel Randewich in Oakland, Calif., and by Johann M Cherian and Ankika Biswas in Bengaluru; Editing by Pooja Desai and Richard Chang)