While you were sleeping: UPDATED Rate hike signal sends stocks tumbling

Stocks on Wall Street fell as the latest reports on US consumer prices, housing starts and industrial production fuelled bets that the Federal Reserve might raise interest rates sooner than expected, after all, as the US economy is gathering steam.

Blue chip stocks fell 1.0%, losing all gains in the previous session.

Two Fed officials, Bank of Atlanta president Dennis Lockhart and San Francisco head John Williams, flagged that the Fed might hike rates at least twice this year.

"Currently, my assumption is two, possibly three," Federal Reserve Bank of Atlanta President Dennis Lockhart said in Washington at an event hosted by Politico, according to Bloomberg. Mr Williams, also at the event, said: "Gradual means two to three rate increases this year."

The Fed could lift rates as early as its next meeting in June, both Lockhart and Williams suggested, according to Bloomberg. Meanwhile, Dallas Fed president Robert Kaplan said he'd like to see an increase soon.

"Whether that's June or July, I can't say right now," Mr Kaplan told reporters after a speech, Reuters reported.

Investors will scrutinise the release of the minutes from the Fed's April meeting, due on Wednesday in Washington.

Inflation rises the most in three years
A Labor Department report showed the consumer price index rose 0.4% last month, the biggest gain since February 2013, following a 0.1% increase in March.

A Commerce Department report showed housing starts climbed 6.6% to a seasonally adjusted annual pace of 1.17 million units in April while a Fed report showed industrial production advanced 0.7% last month.

"This morning the economic news was generally favourable suggesting that ... the US economy has improved to levels warranting something other that crisis-level rates," Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis, told Reuters.

Shorter-dated US Treasuries fell, pushing yields on two-year notes two basis points higher to 0.82%. The greenback strengthened.

"Investors are starting to pare back some of the negativity on the [US] dollar," Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange, told Bloomberg. "The dollar's got some room to move higher here."

Concern about sales growth at Home Depot, even as the company posted better than expected first-quarter profit and upgraded its outlook for the year, also weighed on Wall Street.

Dow falls 180 points
At the close, the Dow Jones Industrial Average dropped 180.73 points, or 1.0%, to 17,529.98. The Nasdaq Composite Index shed 1.25% to 4715.73 and the Standard & Poor's 500 Index declined 0.9% to 2047.21.

Shares of Home Depot slid 2.5%  even after the home improvement chain reported stronger-than-expected quarterly results. Coca-Cola lost 1.9% and Procter & Gamble lost 1.2%.

US crude oil futures rose 1.2% to $US48.31 a barrel, a seven-month high.

Europe's Stoxx 600 Index finished the day at nearly the same level as the previous close. Earlier in the day the index rose as much as 1.2% and fell as much as 0.4%, according to Bloomberg.

The UK's FTSE 100 index rose 0.3%. France's CAC 40 index fell 0.3%, while Germany's DAX index declined 0.6%.

(BusinessDesk)