US stocks fell sharply on Monday, with the S&P 500 and the Nasdaq down 1 percent in late trading, on renewed worries about inflation and higher interest rates. A drop in crude oil prices gave investors a reason to sell shares of oil companies such as Exxon Mobil Corp, which was the biggest weight on both the Dow industrials and the S&P 500.
Major decliners included shares of companies sensitive to economic cycles, such as diversified manufacturer 3M Co and United Technologies Corp worries that North Korea may test a long-distance missile added to pressure on the market.
Atlanta Fed Bank President Jack Guynn, who is a voting member of the Fed's policy-making committee, said core inflation, which excludes volatile food and energy costs, has reached, or gone beyond, the upper end of the range he considers acceptable. "Investors know that rates are going up and so is inflation, and even though many stocks are cheap now, no one wants to be the first to jump and snatch them," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
The Dow Jones industrial average slid 72.44 points, or 0.66 percent, to end at 10,942.11. The Standard & Poor's 500 Index dropped 11.40 points, or 0.91 percent, to finish at 1,240.14. The Nasdaq Composite Index fell down 19.53 points, or 0.92 percent, to close at 2,110.42.
Comments on inflation from Fed officials in recent weeks have firmed up expectations that the central bank will raise rates when it meets next week. That would mark the 17th straight rate hike in two years.
Adding to market nervousness, US officials said North Korea appeared to have completed fuelling for a test of a long-range ballistic missile. US Secretary of State Condoleezza Rice said a launch by North Korea would be a "very serious matter" and regarded as a provocative act. In economic news, US home builders' sentiment sank to its lowest point in more than a decade in June as rising interest rates made homes less affordable, according to an industry survey released on Monday.
An index of home builders' shares fell 2.02 percent. US crude oil futures slid after Iran said there was a positive atmosphere in the dispute over its nuclear program. Crude for July delivery fell 90 cents to settle at $68.98 a barrel on the New York Mercantile Exchange. Shares of Exxon Mobil fell 2.4 percent, or $1.41, to $57.39 on the New York Stock Exchange. The stock of 3M Co lost 1.3 percent, or $1.08, to $79.43, while United Technologies shares slid 1.4 percent, or 85 cents, to $60.90. They were among the biggest drags on the Dow.
In contrast, shares of CarMax Inc, the largest US retailer of used cars, jumped 7.6 percent, or $2.39, to $33.89 after it posted a stronger-than-expected 54 percent increase in quarterly earnings. But the stock of Peerless Systems Corp sank 21.2 percent, or $1.40, to $5.22 and ranked as the Nasdaq's biggest percentage decliner after the provider of imaging and networking technologies said it sees a reduction in its projected service revenue.
Trading was moderate on the NYSE, with about 1.52 billion shares changing hands, below last year's daily average of 1.61 billion, while on Nasdaq, about 1.74 billion shares traded, below last year's daily average of 1.80 billion. Declining stocks outnumbered advancing ones by a ratio of about 3 to 1 on the NYSE and by 11 to 4 on Nasdaq.