Wall St. drops as Treasury yields surge

By Stephen Culp

(Reuters) - A surge in U.S. government bond yields to their highest level in almost seven years sent Wall Street shares sliding on Tuesday after strong retail sales data stoked inflation concerns and investors fretted about looming trade talks between the United States and China.

All three major U.S. stock indexes closed down, with the S&P 500 ending a four-day winning streak and the Dow Jones Industrial Average posting its first loss in eight sessions.

The yield on 10-year U.S. Treasury notes jumped to its highest level since July 2011, suggesting an uptick in inflation and sending the dollar index <.DXY> to its highest close in 2018, raising expectations for further interest rate hikes from the Federal Reserve.

 

"A combination of firm growth and higher interest rates is unnerving," said Anthony Chan, chief economist for Chase in New York. "A stronger dollar means downward pressure. ... A creeping up of these things continues to keep the market nervous."

Core April retail sales - which excludes gasoline, automobiles, building materials and food services - rose at a brisker 0.4 percent monthly pace over March, as consumer spending is quickening its pace after a first-quarter slowdown.

Investors also remain preoccupied by the run-up to high-level talks between China and the United States set to commence this week in Washington. U.S. ambassador to China Terry Branstad said the two countries remain "very far apart" regarding a tariff resolution, after which White House economic adviser Larry Kudlow told Politico he supports efforts to reach an agreement.

"A little bit of today's jitters are related to a hangover to yesterday's wrongly placed exuberance that a trade deal was imminent, and the reality is we are in for a long slugfest between the U.S. and China," said Jon Mackay, investment strategist at Schroders North America in New York.

The Dow Jones Industrial Average <.DJI> fell 193 points, or 0.78 percent, to 24,706.41, the S&P 500 <.SPX> lost 18.68 points, or 0.68 percent, to 2,711.45 and the Nasdaq Composite <.IXIC> dropped 59.69 points, or 0.81 percent, to 7,351.63.

The losses were broad-based, with all 11 major S&P sectors except energy <.SPNY> closing down. Real estate <.SPLRCR>, healthcare <.SPXHC> and technology <.SPLRCT> stocks posted the biggest percentage losses.

Home Depot Inc shares slipped 1.6 percent after the home improvement retailer missed sales forecasts as the long winter put a damper on demand for spring products. Smaller rival Lowe's Companies Inc was down 1.0 percent.

Declining issues outnumbered advancing ones on the NYSE by a 1.87-to-1 ratio; on Nasdaq, a 1.14-to-1 ratio favored decliners.

The S&P 500 posted 10 new 52-week highs and seven new lows; the Nasdaq Composite recorded 82 new highs and 51 new lows.

Volume on U.S. exchanges was 6.60 billion shares, compared with the 6.67 billion-share average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; additional reporting by Lewis Krauskopf; editing by Jonathan Oatis)