US stocks have fallen sharply, with the Nasdaq plunging more than 3 per cent in its biggest one-day percentage drop since February, after US Federal Reserve meeting minutes signalled the central bank may raise interest rates sooner than expected.
The S&P 500 fell more than 1 per cent, its biggest daily percentage decline since November 26, the first day of trading after news of the Omicron variant of the coronavirus.
The S&P 500 and Nasdaq quickly extended their declines after the release of the minutes, which investors viewed as more hawkish than they had feared.
The Dow, which hit a record high earlier in the day, reversed course and ended down more than 1 per cent.
The sell-off was broad, with all S&P sectors ending in the red, and Wall Street's fear gauge, the Cboe Volatility index, closing at its highest level since December 21.
In the minutes from the Fed's December 14-15 policy meeting, central bank policymakers said a "very tight" job market and unabated inflation might require the Fed to raise rates sooner and begin reducing its overall asset holdings as a second brake on the economy.
"Indications that the Fed is very concerned about inflation could quickly create a view that the Fed will aggressively tighten in 2022," David Carter, chief investment officer at Lenox Wealth Advisors in New York, said, calling the minutes "more hawkish than expected".
The S&P 500 technology sector fell 3.1 per cent and was the biggest drag on the benchmark index, while the rate-sensitive real estate sector dropped 3.2 per cent in its biggest daily percentage decline since January 4, 2021.
The Dow Jones Industrial Average fell 392.54 points, or 1.07 per cent, to 36,407.11, the S&P 500 lost 92.96 points, or 1.94 per cent, to 4,700.58 and the Nasdaq Composite dropped 522.54 points, or 3.34 per cent, to 15,100.17.
Rising interest rates increase borrowing costs for businesses and consumers, and higher rates can depress stock multiples, especially for technology and other growth stocks.
Growth shares have been under pressure from a recent rise in US Treasury yields.
The Russell 2000 index suffered its biggest one-day drop since November 26, while the S&P 500 financials index fell 1.3 per cent, a day after it registered an all-time closing high.
Policymakers in December agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022.
The Fed's benchmark overnight interest rate is currently set near zero.
The Labor Department will release the closely watched nonfarm payrolls data for December on Friday.
Declining issues outnumbered advancing ones on the NYSE by a 4.32-to-1 ratio; on Nasdaq, a 4.22-to-1 ratio favoured decliners.
The S&P 500 posted 59 new 52-week highs and 1 new low; the Nasdaq Composite recorded 81 new highs and 307 new lows.
Volume on US exchanges was 12.18 billion shares, compared with the 10.4 billion average for the full session over the last 20 trading days.