NEW YORK—U.S. stocks fellTuesday as investors worried that interest rates may be headed back up after Federal Reserve Chairman Ben Bernanke said that the central bank would strongly resist rising inflation.
The drop on Wall Street followed declines in Asia and Europe.
Technology shares bore the brunt of the selling after the Fed chief's comments drove the dollar higher, causing worries by investors that U.S. tech companies would lose some of their competitive advantage in overseas markets. The Nasdaq fell more than 1 percent soon after the open.
In addition, investors feared a rise in borrowing costs will crimp business investment and consumer spending, key drivers of corporate profits.
Shares of Web search company Google Incand chip maker Intel Corpeach fell more than 1 percent. The semiconductor index dropped 2.1 percent.
"Bernanke is closing the door to more rate cuts," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. "Given the precarious state of housing and the precarious state of the financial industry, it may be more jawboning than it is reality."
The Dow Jones industrial average fell 29.48 points, or 0.24 percent, to 12,250.84. The Standard & Poor's 500 Index dropped 7.11 points, or 0.52 percent, to 1,354.65. The Nasdaq Composite Index declined 18.73 points, or 0.76 percent, to 2,440.73.
Other Fed officials echoed Bernanke's concerns about inflation on Tuesday. Dallas Federal Reserve Bank President Richard Fisher said no central bank should accommodate global price pressure on energy and food.
Boston Federal Reserve President Eric Rosengren said rising food and energy costs were still trickling through the economy, complicating the outlook for inflation.
Google shares fell to $550.35 on Nasdaq, while Intel declined to $22.45.
Shares of technology services company International Business Machines Corpwere a top drag on the Dow, falling nearly 1 percent at $125.04 on the New York Stock Exchange.
AT&T Incshares fell 1.1 percent to $37.15 on the NYSE after the largest U.S. mobile phone company said its profit will suffer initially as it subsidizes the price of Apple Inc'snewest iPhone.
On a positive note, Deutsche Bank raised its rating on Coca-Cola Co, the world's largest soft-drink maker. The stock is seen as a defensive play, meaning it is better positioned to cope with a slowing economy.
Coca-Cola shares jumped more than 3 percent to $57.83 on the NYSE. That gain and a rise in the shares of major banks, including JPMorgan Chase & Co, helped the Dow briefly to turn higher and the S&P 500 to cut losses.
"There's a semi-flight to quality within the bank sector. The stock's that are down the least year-to-date seem to be picking up momentum," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
Bernanke's comments came after U.S. crude oil prices hit a record above $139 a barrel Friday, a day on which government reported the unemployment rate notched its biggest jump in 22 years in May. Oil was up $1.45 at $135.77 on the New York Mercantile Exchange.
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