While you were sleeping: UPDATED Stocks fall as US hike prospects rise

Stocks on Wall Street fell for the second day, while the US dollar rose, amid fresh signals that the Federal Reserve might raise interest rates as early as next month.

"To reiterate what some of my colleagues have said, June is definitely a live meeting," said New York Fed President William Dudley, a voting member of the Federal Open Market Committee, CNBC reported.

"[It] depends on how the economy is going to evolve. We are on track to satisfy a lot of the conditions" for a rate increase, he added.

Mr Dudley's comments came a day after minutes from the last FOMC meeting, held in April, signalled that a rate hike decision could be made next month.

The US jobs market continues to offer signs of strength. A Labor Department report showed initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 278,000 for the week ended May 14, the biggest decrease since February.

Separately, the Conference Board's leading economic index rose 0.6% in April. Still, the Philadelphia Fed's business conditions index fell to minus 1.8 in May, from a reading of minus 1.6 in April.

Dow drops 91 points
The Dow Jones Industrial Average fell 91.22 points, or 0.5%, to close at 17,435.40 all but erasing the index’s gains for the year. The Nasdaq Composite Index slid 0.6% to 4712.53 while the Standard & Poor's 500 Index retreated 0.4% to 2040.04.

"The weakness is a continuation of yesterday and the threat of higher interest rates, either real or perceived," Terry Morris, a senior equity manager at Wyomissing, Pennsylvania-based National Penn Investors Trust, told Bloomberg.

"The economy is fragile and a hike in interest rates could send it over the edge. There is a fear that if rates do go up, the economy won't be able to support it."

Gold, oil fall
The US dollar strengthened, hurting the appeal of commodities denominated in it including gold, silver and copper.

Gold declined 1.5% to $US1254.20 an ounce while.US crude oil prices dropped 0.6% to $48.16 a barrel.

Wal-Mart shares soared 9.6% after the company posted quarterly earnings that exceeded estimates, in contrast to a general trend of weakness among US retailers this reporting season.

"It looks like the middle-to-higher-income customers have cut back, but the lower-income customer is spending," Edward Jones analyst Brian Yarbrough told Reuters.

Even so, some were cautious. UBS retail analyst Michael Lasser said he wasn't ready to upgrade the stock to buy, noting that Wal-Mart's operating margin fell in the quarter as US sales rose, CNBC reported.

"There's a mismatch there. What we need to see is that they can grow sales and earnings over time," he told CNBC. "Right now they're investing in the business-in labour, in prices-to drive the long term. I think it's going to take several quarters before we see any evidence that this is working."

Europe's Stoxx 600 Index finished the day with a 1.1% slide from the previous close, as shares of commodity producers weakened.

France's CAC 40 index fell 0.9% and Germany's DAX index gave up 1.5%, while the UK's FTSE 100 index dropped 1.8%.

(BusinessDesk)