US stocks tumbled on Thursday as Treasury yields surged above 5 percent, reinforcing fears that global inflation would force borrowing costs to rise. 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 homebuilders 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 on Tuesday just days after the S&P 500 had completed its best two-month performance in nearly four years fuelled in part by mergers and acquisitions. 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. 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.
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, signalling to some that rising gasoline prices and a slowing housing market are taking their toll.
Wal-Mart Stores Inc's stock fell 2 percent to $49.76 after it said sales at US stores open at least a year rose in May but toward the low end of its forecast.
The Dow Jones US Home Construction Index tumbled 4.2 percent, dragged down by interest-rate worries and as Meritage Homes Corp dropped 5.6 percent to $31.25 after warning of weaker sales.
The S&P financial index, which includes shares of investment banks such as Goldman Sachs and Merrill Lynch & Co, was down 1.7 percent. Shares of utility Consolidated Edison fell 2.6 percent to $46.39 on the NYSE.
But take-over news, which has helped fuel the rally this spring, continued. Shares of Biomet Inc rose 3.1 percent to $45.56 after the orthopaedic device maker accepted a sweetened take-over bid from a group of private equity firms.
Apple Inc 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.