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New York - US stocks fell more than 1% on Wednesday after Federal Reserve chairperson Ben Bernanke said the central bank would start to reduce its stimulus measures later this year if the economy is strong enough.
Equities have been closely tethered to ultra-loose monetary policy, which has been key to the S&P's climb of more than 14% so far this year. Benchmark 10-year US bond yields jumped to a 15-month high on expectations the Fed will reduce its bond buying.
Bernanke said at a news conference the Fed may reduce its bond-buying programme with the goal of ending it in mid-2014. While investors have expected the Fed to pull back on its stimulus, Bernanke's comments gave the most explicit timeline to markets, causing stocks to tumble on heavy volume.
In the days leading up to the Fed announcement, stocks had swung between modest losses and breakeven.
"I was surprised he addressed the issue of tapering, since last time he did we saw a fairly significant market hiccup," said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio.
The Dow Jones industrial average was down 205.96 points at 15 112.27. The Standard & Poor's 500 Index was down 22.89 points at 1 628.92. The Nasdaq Composite Index was down 38.98 points at 3 443.20.
Shortly before Bernanke spoke at a news conference, Fed policymakers said in a statement the Fed would keep buying $85bn in bonds per month and gave no explicit indication that it was close to scaling back the stimulus program.
About 6.65 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, above the daily average so far this year of about 6.36 billion shares.
"If the economic growth we have is sustainable without the Fed, that's good news," added Bateman, who helps oversee $15bn. "But it is hard to wean the system off the easy money."
Shares of Adobe Systems rose 5.6% to $45.78 a day after the maker of Photoshop and Acrobat software reported a higher-than-expected adjusted quarterly profit.FedEx reported higher quarterly profit than expected as its ground shipment business improved. Shares were up 1.1% at $100.54.
After the market closed, Jabil Circuit fell 1.6% in extended trading after it reported a steep drop in quarterly profits, while Micron Technology lost 1.5% to $13.76.
Red Hat rose 3.9% to $48 after the closing bell. The company posted a strong jump in earnings and revenue.
On the downside, Sprint Nextel was both the most heavily traded stock on the New York Stock Exchange and one of the biggest decliners on the S&P 500, down 4.4% to $7.
Japan's SoftBank cleared a major hurdle in its attempt to buy Sprint as rival bidder Dish Network declined to make a new offer after SoftBank sweetened its own bid last week.
