US stocks fall on Fed rate talk as volatility picks up

Stocks drop on rate hike jitters after investors increased their bets that the Fed would raise rates later this year.

NEW YORK (AFP) - Wall Street stocks tumbled on Tuesday, reversing the prior session's gains, as solid US economic data boosted the chances the Federal Reserve will move more quickly to hike interest rates.

Equity markets were also in retreat in much of Europe and Asia, although Tokyo advanced on the weakening yen and London pushed higher thanks to strength in oil and mining shares.

In the US, the S&P 500 lost 0.9 per cent, an almost exact reversal of the prior session's march higher.

US economic data was solid, with industrial production, consumer prices and housing starts all rising in April. Yet the better data was seen as increasing the likelihood the Fed could increase interest rates.

"It just seems like there's a huge difference of opinion and we're seeing it in the daily volatility," said Jack Ablin, chief investment officer at BMO Private Bank.

"Investors are taking good economic news as bad investment news, because it will prompt the Federal Reserve to come and raise rates more aggressively."

But Art Hogan, chief market strategist at Wunderlich Securities, said there is still a very low chance the Fed will hike rates at the next opportunity in June. Rising volatility in stocks reflects the lack of market-moving news this week, he said.

"We're struggling for some direction," Hogan said.

Frankfurt and Paris stocks closed in the red, while London edged 0.3 per cent higher in value.

London's resources-heavy FTSE 100 was buoyed by oil prices striking multi-month high points, pushing close to US$50 a barrel, as wildfires spread in Canada's oil sands region, forcing thousands more to evacuate.

Tokyo rose 1.1 per cent as shares in top automakers Toyota and Nissan rose behind a retreating yen, and energy stocks such as oil company Inpex climbed with oil prices.

Among individual stocks, British homebuilder Taylor Wimpey jumped 4.7 per cent as it announced a special dividend of £300 million (S$600 million) and boosted its financial targets for 2016 through 2018.

Vodafone shares rallied 1.5 per cent after the mobile phone giant reported its first underlying earnings growth in eight years.

Dow member Home Depot dropped 2.5 per cent despite earnings that bested analyst expectations and an improved 2016 forecast. Analysts said the good news was already built into the stock.

Valuation concerns also led to a bruising day for US consumer staples companies, with Kraft Heinz losing 4.3 per cent and ConAgra Foods, Mondelez and General Mills all losing more than two percent. Analysts said shares in the sector have risen considerably and were due for a pullback.

New York - Dow: DOWN 1.0 per cent at 17,529.98 (close)

New York - S&P 500: DOWN 0.9 per cent at 2,047.21 (close)

New York - Nasdaq: DOWN 1.3 per cent at 4,715.73 (close)

London - FTSE 100: UP 0.3 per cent at 6,167.77 (close)

Paris - CAC 40: DOWN 0.3 per cent at 4,297.57 (close)

Frankfurt - DAX 30: DOWN 0.6 per cent at 9,890.19 (close)

EURO STOXX 50: DOWN 0.5 per cent at 2,938.09 (close)

Tokyo: Nikkei 225: UP 1.1 per cent at 16,652.80 (close)

Shanghai - Composite: DOWN 0.3 per cent at 2,843.68 (close)

Hong Kong - Hang Seng: UP 1.2 per cent at 20,118.80 (close)

Euro/dollar: DOWN at $1.1313 from from $1.1318

Dollar/yen: UP at 109.13 yen from 109.06 yen