Wall Street drops as BOJ heightens stimulus worries

By Leah Schnurr

NEW YORK (Reuters) - U.S. stocks tumbled on Tuesday after Japan disappointed markets by holding its monetary policy steady, stirring worries about the eventual decline in central bank support that has fueled a big move in equities so far this year.

The lack of further action 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.

 

"Central banks have pushed many assets beyond the fundamentals and created a great deal of volatility," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

"Nobody really has an idea where the unwinding stops."

The Dow Jones industrial average fell 130.82 points, or 0.86 percent, to 15,107.77. The Standard & Poor's 500 Index ropped 15.39 points, or 0.94 percent, to 1,627.42. The Nasdaq Composite Index lost 34.82 points, or 1.00 percent, to 3,438.94.

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 0.5 percent.

With half an hour of trading underway, decliners had the upper hand, beating advancers on the New York Stock Exchange by 2,639 to 207.

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 15.5 percent at $69.54.

SoftBank Corp <9984.T> 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 surged 20.1 percent to $12.25 after the company received an unsolicited buyout offer from its chief executive.

(Editing by Nick Zieminski)