Stocks fell sharply in early trading on Wall Street Tuesday
after a key August inflation report came in hotter-than-expected, hurting
investor optimism for cooling prices and a less aggressive Federal
Reserve. 

The S&P 500 fell 112.92 points or 2.755 to 3,997.12 as
of 10:35 am Eastern time, threatening to break a four-day winning streak. The
Dow Jones Industrial Average lost 792.23 points, or 2.46%, to 31,589.11. The
Nasdaq composite dropped 417.53 points or 3.8% to 11,848.88. Big tech stocks
tumbled more than the rest of the market, as all 11 sectors in the S&P 500
witnessed losses.

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Inflation in the United States eased slightly to 8.3% in
August year-on-year from 8.5% in the previous month. The figure was higher than
expected, pointing to a decline to 8.1%.

The inflation numbers were so much worse than expected that
investors now expect a one-in-five chance for an interest rate hike of a full
percentage point by the central bank next week. That would be four times the
size of a usual move, and no one in the futures market was predicting such a
hike a day earlier.

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The Fed has already hiked its key interest rate four times
this year, with the last two increases by three-quarters of a percentage point.
Currently, the federal funds rate is in the range of 2.25% to 2.50%.

In the stock market, all but 16 of the stocks in the
S&P 500 declined. Technology and other high-growth companies lost more than
the rest of the market because they’re seen as most at risk from higher rates.

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Apple, Microsoft, and Amazon all shed at least 4% and were
the heaviest weights on the market. The communication services sector, which
includes Alphabet Inc and other internet and media companies, fell 4.5% for the
largest loss out of the 11 sectors in the S&P 500 index.

The inflation report was released before trading began on
Wall Street, but it led to disappointment in the markets worldwide.

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Treasury yields fell sharply on expectations for a more
aggressive Fed. The yield on the two-year Treasury, which tends to track
expectations for Fed actions, rose to 3.73% from 3.57% late Monday. The 10-year
yield, which helps determine where mortgages and rates for other loans are
heading, rose to 3.43% from 3.36%.

European stock markets moved from gains to losses.
Germany’s DAX was down 1.2% and France’s CAC fell 1%.

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The US dollar also added to its already strong gains for
this year, The dollar has been rising against the euro, Japanese yen, and other
currencies in large part because the Fed has been raising interest rates faster
and by bigger margins than many other central banks. An index measuring the
value of the dollar against several major currencies rose 1%.