Wall Street ends lower on deadlocked debt ceiling talks
Wall Street stocks have finished sharply lower and short-term Treasury yields shot up as investor jitters grew over a lack of progress in US debt limit talks.
Representatives of US President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday, as the deadline drew closer to raise the government's $US31.4 trillion ($A47.2 trillion) borrowing limit or risk default.
Debt limit worries pushed yields on one-month Treasury bills to record highs at 5.888 per cent.
Investors are also waiting for minutes from the Federal Reserve's May 2-3 meeting, due on Wednesday, to assess the central bank's next likely move on interest rates.
Regional Fed Presidents James Bullard and Neel Kashkari on Monday indicated that the US central bank may need to continue hiking rates if inflation remains high.
Michael Wilson, Morgan Stanley's equity strategist, said a US debt default is not priced into the market.
Even if the two sides agree on a deal, it could still have implications for economic growth, he said.
"If they come to an agreement on the debt ceiling, there will be some concessions on the fiscal spending. It's an issue for growth," Wilson said.
"Is that going to be an immediate impact, or will it be later? We think there's a bit of both. At the end of the day, there's no positive trade-off."
The S&P 500 benchmark index declined 1.12 per cent to end at 4,145.58 points, the Nasdaq Composite fell 1.26 per cent to 12,560.25 points and the Dow Jones Industrial Average slid 0.69 per cent to 33,055.51 points.
Volume on US exchanges was relatively light, with 10.3 billion shares traded compared to an average of 10.6 billion shares over the previous 20 sessions.
Strategists polled by Reuters expect the S&P 500 to end the year at 4,150 points, down slightly from Monday's close of 4,192.63.
Helping limit larger losses, the S&P Global data showed US business activity rose to a 13-month high in May, lifted by strong growth in the services sector.
The report was the latest sign that the economy held its momentum early in the second quarter despite rising risks of a recession.
The Commerce Department's April personal consumption expenditure (PCE) index reading, the Fed's preferred inflation gauge, is due on Friday.
Broadcom Inc advanced 1.2 per cent after the chipmaker entered into a multi-billion-dollar deal with Apple Inc to use chips made in the United States.
Apple shares fell 1.5 per cent.
Zoom Video Communications dropped more than 8.0 per cent after the video conferencing platform reported its slowest quarterly revenue growth.
Among retail earnings, Lowe's Companies Inc cut its annual comparable sales forecast, as demand dwindles for home improvement goods.
Lowe's ended up 1.7 per cent.
Shares of regional lenders extended gains from Monday, led by a 7.9 per cent gain in PacWest Bancorp, with the KBW regional banking index rising 0.9 per cent.
Declining stocks outnumbered rising ones within the S&P 500 by a 3.5-to-one ratio.
The S&P 500 posted three new highs and one new low; the Nasdaq recorded 90 new highs and 70 new lows.