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Wall Street slides as inflation data fuels Fed worries

Wall Street's main indexes have posted their biggest weekly drop of the year with investors bracing for the possibility of more aggressive rate hikes from the United States Federal Reserve as US economic data points to resilient consumers.

For the blue-chip Dow Jones Industrial Average, the 3.0 per cent fall was its biggest weekly decline since September.

It was also the Dow's fourth straight weekly decline, its longest losing streak for almost 10 months.

The S&P 500 and Nasdaq Composite were also down 2.7 per cent and 3.3 per cent, respectively.

After a strong January, stocks have retreated this month as a slew of economic data amplified worries the US central bank might have to keep rates higher for longer.

Data on Friday showed the personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, shot up 0.6 per cent in January after gaining just 0.2 per cent in December.

Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1.8 per cent last month, exceeding forecasts for a 1.3 per cent rise.

Jason Pride, chief investment officer of private wealth at Glenmede, said previous market cycles had witnessed similar delayed reactions by the market to rising interest rates and data releases, which helps explain volatile trading patterns as investors slowly adjust.

"This market has not yet realised the likelihood of a recession that we think is reality," he said, noting past rate hikes normally had taken between six and 18 months before their effects had fully filtered through into the economy.

"We don't think (a recession is) a given, but there's a higher likelihood than the market has embedded in its thought process."

Traders of futures tied to the Fed's policy rate added to bets of at least three more rate hikes this year, with the peak rate seen in the range of 5.25 per cent to 5.5 per cent by June.

Cleveland Fed president Loretta Mester said the Fed should raise interest rates higher than necessary if need be to get inflation fully under control.

The Dow Jones Industrial Average fell 336.99 points, or 1.02 per cent, to 32,816.92, the S&P 500 lost 42.28 points, or 1.05 per cent, to 3,970.04 and the Nasdaq Composite dropped 195.46 points, or 1.69 per cent, to 11,394.94.

Nine of the 11 major S&P sectors fell, with real estate, technology and consumer discretionary the biggest decliners.

Communication services fell 1.4 per cent to a sixth straight loss, its worst run since a similar six-session skid in August.

Megacap stocks including Tesla Inc, Inc and Nvidia Corp slid between 1.6 per cent and 2.6 per cent as Treasury yields rose.

The yield on two-year Treasury notes, which are highly sensitive to Fed policy, climbed to 4.826 per cent - its highest in almost four months.

Boeing Co slid 4.8 per cent after the Federal Aviation Administration said the plane maker temporarily halted deliveries of its 787 Dreamliner jets.

Adobe Inc sank 7.6 per cent on reports the US Justice Department would block the Photoshop maker's $20 billion bid for cloud-based designer platform Figma.

The decline in Adobe's stock was the largest since September 15, the day the Figma agreement was announced.

Meanwhile, Range Resources Corp jumped 11.9 per cent in late trading, its biggest gain in nine months, after Bloomberg News reported that Pioneer Natural Resources was in talks to buy it.

Pioneer's stock fell 4.1 per cent on the report.

Volume on US exchanges was 10.31 billion shares, compared with the 11.53 billion average for the full session across the past 20 trading days.

The S&P 500 posted two new 52-week highs and 11 new lows.

The Nasdaq Composite recorded 44 new highs and 162 new lows.