The Dow Jones industrial average had its second-biggest drop of the year, plunging almost 500 points, or 1.9 percent, shortly after 2:00 p.m.
Treasury yields retreated from multi-year highs following the inflation data and as investors flocked to the relative safety of USA government bonds.
The tech sector was hit hardest, with Netflix down almost 7 per cent, Amazon down 5 per cent and Apple, Google and Facebook all down more than 3 per cent.
The Nasdaq composite index was off 43 points beflore climbing the same amount and the S&P 500 was down 15 before edging into positive territory. JPMorgan 's Jason Hunter thinks we may have seen the worst of the news from the bond market, as recent action leaves him "looking for yields to form a bullish reversal pattern near current levels and define the cheaper end of the fourth-quarter 2018 to first-quarter 2019 range".
S&P 500 e-mini futures EScv1 and Nasdaq futures NQcv1 were both down 0.1 percent.
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The retreat on Wall Street was led by technology stocks, which dropped 2.33 percent, and the trade-sensitive industrial stocks that fell 2.22 percent.
The market had been calm from late June through September as investors were satisfied with continued economic growth, strong company profits, and signs of progress in trade talks between the US and several partners, although the USA remained at odds with China.
Oil prices slumped to two-week lows as global stock markets fell, with investor sentiment made more bearish by an industry report showing US crude inventories rising more than expected.
Many investors now believe that the Federal Reserve's campaign to "normalize" monetary policy, reversing years of extraordinary support that included the quantitative easing bond buying program and keeping its overnight target very low, will push interest rates higher than previously thought.
"Equity investors are surprised by the pace at which rates have risen", Marcella Chow, global market strategist at J.P. Morgan Asset Management, said in a report. It has fallen 7.5 percent in just five days.
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"If investors are going to take profits then it will be from some of the bigger, high-growth names", Nauman said.
"If the Feds are insane, this market reaction is bordering on insanity, as so many negative crosscurrents collide that is merely impossible to find a glint of optimism", he added. Amazon plunged 6.2 percent. The Russell 2000 index of smaller-company stocks shed 2.9 percent, to 1,575.41.
Bank shares were boosted as yields rose, with Citigroup and Bank of America seeing gains of 0.4 percent and 0.3 percent, respectively.
In other metals trading, silver rose 2 percent and copper added 0.8 percent. And tech stocks got hit particularly hard.
The dollar fell to 111.94 yen from 112.59 yen, and the euro rose to $1.1594 from $1.1525.
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