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Dow drops almost 200 points

18 May 2018

That yield is used to set interest rates on mortgages and other kinds of loans.

U.S. stocks fell firmly on Tuesday after a surge in USA government bond yields to their highest level in nearly seven years challenged appetite for equities compared with climbing rates for risk-free bonds.

Higher borrowing costs sent stocks sharply lower. "So we're not too concerned at these levels, but that's definitely driving the market today".

Canada's main stock index reversed course to edge higher on Tuesday, as gains in industrial stocks led by Air Canada more than offset a drop in miners due to declining gold prices.

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The S&P 500 fell 0.7 percent, to 2,711.45.

The Dow lost 183 points, or 0.7 percent, to 24,715. The drop pulled the 30-company average to a slight loss for the year. The Nasdaq composite dropped 0.8 percent to 7,351.63 as Amazon, Microsoft and Google-parent Alphabet all pulled back more than 1 percent.

The chip maker stocks also posted a price jump on Monday after a report suggesting that Chinese regulators will re-examine the proposed acquisition of Qualcomm's NXP Semiconductors. In other words, you can earn higher income on risk-free short-term money than you can on stocks. The S&P 600 closed at 982.43 for a gain of 0.30 points or 0.03%. The Nasdaq is up 4 percent. Bond yields tend to rise when investors expect faster economic growth and higher inflation.

U.S. retail sales increased at a moderate 0.3 per cent in April as rising gasoline prices took a bite out of discretionary spending, according to the U.S. Commerce Department.

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Markets focused early on economic reports with sales at U.S. retailers rising for a second straight month in April.

"A combination of firm growth and higher interest rates is unnerving", said Anthony Chan, chief economist for Chase in NY. The move raised expectations for further interest rate hikes from the Federal Reserve. Some Fed-watchers have been cautioning that any lasting uptick in inflation or economic growth might spur the Fed to pursue an additional rate increase before year's end.

With yields rising, rate-sensitive stocks were among the worst performing Tuesday. Essex Property Trust fell 3 percent to $234.69. It also put investors in the mood to sell stocks in home builders. Higher mortgage rates can make it harder for would-be buyers to afford to purchase a home. The Vaneck Vectors Semiconductor ETF (SMH) 1.7 percent on the news. Hong Kong's Hang Seng slipped 0.1 percent to 31,116.35, but the S&P ASX 200 added 0.4 percent to 6,120.60. Chipmaker Nvidia fell 3.8 percent to $245.56.

The difference between the two benchmarks briefly widened to more than $8 a barrel, the widest gap since April 2015, reflecting surging US crude supplies and a greater geopolitical risk to Brent-based crudes.

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Dow drops almost 200 points