Wall Street down as BOJ decision fuels stimulus worries

By Angela Moon and Alison Griswold

NEW YORK (Reuters) - U.S. stocks fell on Tuesday after the Bank of Japan chose not to take stimulus measures and increased investors' worries about the eventual decline in central bank support that has supported equities' rally.

Losses were felt broadly across sectors, with the financial and materials groups leading the way down, falling more than 1 percent each. The defensive utilities sector fared relatively better, down just 0.2 percent.

The lack of further action from BOJ rattled investors across asset classes. U.S. Treasury yields hit fresh 14-month highs, the yen rose sharply and equities dropped globally.

The reaction highlighted worries about what will happen when the global stimulus programs eventually go away. Investors have also become more nervous in recent weeks over when the U.S. Federal Reserve may slow its measures, which have been a significant driver of this year's stock market rally.

"Clearly this is attributable to the Bank of Japan and them not following through on what everybody anticipates as a blank check in aiding banks in particular with their policies," said Joseph Greco, managing director at Meridian Equity Partners in New York.

He said investors must stop seeing bad economic news as good for the stock market because it means prolonged stimulus efforts by the Fed. "We're starting to see people coming to grips with that. We need good news to be good news for the market," Greco said.

Data showed U.S. wholesale inventories rose modestly in April, the latest suggestion that restocking will not be much of a boost to economic growth in the second quarter. Market reaction was muted.

The Dow Jones industrial average was down 80.45 points, or 0.53 percent, at 15,158.14. The Standard & Poor's 500 Index was down 10.86 points, or 0.66 percent, at 1,631.95. The Nasdaq Composite Index was down 21.97 points, or 0.63 percent, at 3,451.80.

In the first two hours of trading, decliners had the upper hand, beating advancers on the New York Stock Exchange by 2,564 to 343. On the Nasdaq, decliners were beating advancers 1,775 to 529.

The Bank of Japan in April announced a $1.4 trillion stimulus program, and while the central bank on Tuesday left the door open to taking fresh steps to calm markets if borrowing costs spike again, it did not appear to assuage investors.

The S&P 500 is up more than 15 percent since the start of the year, but markets have been bumpier since comments from Fed Chairman Ben Bernanke last month sparked uncertainty over the central bank's timeline for slowing its $85 billion a month bond purchase program.

Some investors are starting to prepare for the Fed to cool the pace of its bond buys by the end of the year.

Among individual companies, shares of Lululemon Athletica slumped after the company's chief executive said she will step down. The stock was down more than 17 percent at $68.05.

SoftBank Corp said it agreed with Sprint Nextel Corp to raise its offer for the U.S. wireless carrier to $21.6 billion from $20.1 billion. Sprint was up 2.2 percent at $7.34.

Dole Food Company Inc surged more than 21 percent to $12.37 after the company received an unsolicited buyout offer from its chief executive.

(Reporting by Angela Moon)