Wall Street sells off amid Fed rate hike jitters

By Lewis Krauskopf

(Reuters) - Wall Street sold off on Tuesday as investors boosted their bets on the Federal Reserve raising rates later this year, while Home Depot dragged on indexes following its quarterly report.

U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose. The data pointed to a steady inflation build-up that could give the Fed ammunition to raise interest rates later this year.

Also on Tuesday, a Fed policymaker said he will push for an interest rate hike in June or July, and two others still see up to three rate increases this year, leaving the door open to a change in monetary policy relatively soon.

Traders now see the probability of a rate hike after the Fed's November meeting at 58 percent, up from roughly 42 percent on Monday, according to the CME FedWatch tool.

"The equity market is taking cues from stronger data and some of the comments from Fed members in terms of maybe hiking more than is priced into the market," said Patrick Maldari, senior fixed income investment specialist at Aberdeen Asset Management in New York.

The Dow Jones industrial average fell 180.73 points, or 1.02 percent, to 17,529.98, the S&P 500 lost 19.45 points, or 0.94 percent, to 2,047.21 and the Nasdaq Composite dropped 59.73 points, or 1.25 percent, to 4,715.73.

Utilities <.SPLRCU> and consumer staples <.SPLRCS>, both high-dividend-paying groups that tend to be sold when the expectation of higher rates increases, were the worst performing S&P sectors. Nine of ten sectors ended lower.

The S&P 500 is virtually unchanged for 2016. While the benchmark index has risen about 13 percent since February lows, the rally fizzled out in the last few weeks amid mixed corporate earnings and economic data.

"For every step forward in the market like yesterday, it just seems like it's met with a step back on a day like today," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

Home Depot boosted its sales and profit forecasts for the year after a stronger-than-expected first quarter. But its shares, which have outperformed the consumer discretionary sector over the past year and last week touched an all-time high, dropped 2.5 percent and were among the biggest drags on the S&P 500 and the Dow.

Gloomy reports from retailers had clouded the market last week. Wal-Mart and Target are set to report results later this week.

AbbVie fell 3.5 percent to $60.25 after Coherus said the U.S. Patent and Trademark Office agreed to review its petition to make a copy of AbbVie's top-selling drug. Coherus jumped 15.9 percent to $18.85.

About 7.5 billion shares changed hands on U.S. exchanges, above the 7.2 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Declining issues outnumbered advancing ones on the NYSE by 1,932 to 1,061, for a 1.82-to-1 ratio on the downside; on the Nasdaq, 2,106 issues fell and 766 advanced for a 2.75-to-1 ratio favoring decliners.

The S&P 500 posted 7 new 52-week highs and 5 new lows; the Nasdaq recorded 23 new highs and 81 new lows.

(Additional reporting by Rodrigo Campos in New York, Yashaswini Swamynathan and Tanya Agrawal in Bengaluru; Editing by Nick Zieminski)