* Texas Instruments forecast boosts tech shares
* 3-year Treasury note auction on tap
* S&P 500 off 0.2 pct, Dow down 0.3 pct, Nasdaq up 0.4 pct (Updates to mid-morning)
By Edward Krudy
NEW YORK, June 9 (Reuters) - Technology shares led Nasdaq higher on Tuesday after Texas Instruments raised its outlook, but other indexes were lower after plans by big banks to repay government bailout funds failed to stir investors.
Stocks initially rallied after the Treasury Department said 10 big banks will pay back $68 billion they received from the government, but quickly fell back. Investors switched their attention to a 3-year Treasury note auction set for 1 p.m. EDT.
Markets are worried that an oversupply of government debt could push interest rates still higher and increase the cost of borrowing to consumers and businesses.
Shares of Texas Instruments Inc rose 4.4 percent to $20.64 after it raised its second-quarter revenue and earnings targets late Monday. The PHLX semiconductor index rose 2.3 percent on the news.
"Any time you get a company discussing guidance and increasing guidance, its going to be taken as out-sized positive news," said Dan Greenhaus, an analyst at Miller Tabak & Co.
The Dow Jones industrial average dropped 23.12 points, or 0.26 percent, to 8,741.37. The Standard & Poor's 500 Index dropped 1.46 points, or 0.16 percent, to 937.68. The Nasdaq Composite Index gained 6.43 points, or 0.35 percent, to 1,848.83.
An increase in oil and commodity prices, underpinned by a weaker U.S dollar, added to concerns over inflation, but helped to boost shares of natural resource companies such as Chevron Corp, up 0.4 percent to $69.83, and Freeport-McMoRan Copper & Gold Inc, up 1 percent to $56.96.
"The bigger story is what we're seeing in inflationary barometers," said Craig Peckham, equity trading strategist at Jefferies & Co in New York. "Crude, gold, copper prices are all rallying to the upside, and the dollar has resumed its downward slide after a big rally, post the employment numbers last week."
The S&P 500 has rallied 39 percent since hitting a 12-year closing low on March 9, leading analysts to speculate a correction was looming, although recent dips have been short-lived.