NEW YORK – U.S. stocks tumbled Thursday as Treasury yields surged above 5 percent, reinforcing fears that global inflation would force borrowing costs to rise.
The Dow Jones industrial average slid 198.94 points, or 1.48 percent, to end at 13,266.73, with all 30 Dow components finishing in the red.
The Standard & Poor's 500 Index lost 26.66 points, or 1.76 percent, to finish at 1,490.72. The Nasdaq Composite Index dropped 45.80 points, or 1.77 percent, to close at 2,541.38. The three benchmark indexes suffered their biggest one-day percentage losses since March 13.
Shares of companies that pay high dividends, including telecommunications provider AT&T Inc. and utilities, fell as they faced stiffer competition from bonds. Stocks of companies sensitive to rising borrowing costs such as home builders and banks were among the worst-performing sectors.
Adding to the sell-off were comments obtained by Reuters from long-time bond bull Pimco's Bill Gross, who conceded the snappy pace of global economic growth will likely keep bonds on their heels.
Major indexes posted their biggest three-day drop since February's global equity rout, and their biggest one-day loss in three months. The sell-off began Tuesday just days after the S&P 500 had completed its best two-month performance in nearly four years fueled in part by mergers and acquisitions.
"It's the reality of higher interest rates and the specter of what that means, potentially, for M&A activity and also corporate profits," said Tim Woolston, portfolio manager at Boston Advisors LLC.
"M&A activity has been driving the rally for the past weeks and if the cost of borrowing goes up, it may not make as many deals economic."
SELLING ACROSS THE BOARD
Stocks were being sold across the board, with 11 stocks declining for every one that advanced on the New York Stock Exchange. On the Nasdaq, 3 losers per gainer on the Nasdaq.
The yield on the benchmark 10-year Treasury note rose to 5.12 percent, crossing the psychologically important 5 percent level for the first time since last August.
Adding to inflation concerns was a jump in oil prices. U.S. crude settled up 97 cents at $66.93 a barrel.
AT&T shares fell 2.1 percent to $39.52. Shares of General Electric Co. whose dividend yield of 3 percent rivals that of AT&T's, slid 1.4 percent to $36.76.
The S&P retail index also slid 1.9 percent after mixed May sales reports from major retailers, signaling to some that rising gasoline prices and a slowing housing market are taking their toll.
Wal-Mart Stores (WMT) Inc.'s stock fell 2 percent to $49.76 after it said sales at U.S. stores open at least a year rose in May but toward the low end of its forecast.
The Dow Jones U.S. Home Construction Index tumbled 4.2 percent, dragged down by interest-rate worries and as Meritage Homes Corp. (MTH) dropped 5.6 percent to $31.25 after warning of weaker sales.
The S&P financial index , which includes shares of investments banks such as Goldman Sachs (GS) and Merrill Lynch & Co. (MER), was down 1.7 percent.
Shares of utility Consolidated Edison fell 2.6 percent to $46.39 on the NYSE.
But takeover news, which has helped fuel the rally this spring, continued. Shares of Biomet Inc. rose 3.1 percent to $45.56 after the orthopedic device maker accepted a sweetened takeover bid from a group of private equity firms.
Apple Inc. (AAPL) was among the session's rare gainers after positive remarks on tech stocks by television commentator James Cramer on his CNBC program.
Shares of Apple gained 0.4 percent to $124.07, after earlier hitting an all-time high of $127.61.
Trading was active on the NYSE, with about 1.91 billion shares changing hands, above last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.42 billion shares traded, more than last year's daily average of 2.02 billion.