By Sinéad Carew and Caroline Valetkevitch
(Reuters) - Wall Street's major stock indexes all fell more than 1% while the dollar hit a six-week peak and Treasury yields climbed on Thursday after data showed higher-than-expected U.S. producer prices for January while jobless claims fell, underscoring the view the Federal Reserve would need to keep aggressively tightening policy to fight inflation.
The number of Americans filing for unemployment benefits unexpectedly fell by 1,000 last week to a seasonally adjusted 194,000, according to the Labor Department. This was below economist forecasts for claims of 200,000.
Another Labor Department report showed monthly producer prices accelerating in January with the producer price index (PPI) for final demand up 0.7% compared with economist expectations of 0.4%. In the 12 months through January, PPI increased 6.0% compared with expectations for a 5.4% increase.
Investors also worried about hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester about the last rate hike and what future changes are needed.
"We've had a trend of strong data," said Michael O’Rourke, chief market strategist at JonesTrading. "The PPI was the latest, the straw that broke the camel's back, making investors think we should be concerned. Then 15 minutes later Meister came out and said she saw a compelling case for 50 basis points rate hike at the meeting earlier this month.
"With the strong data we've had it gets people concerned the Fed is behind the curve on inflation once again."
On Wednesday, a report showed U.S. retail sales increased in January by the most in nearly two years. On Tuesday, data showed U.S. consumer prices accelerated in January.
"It looks like inflation is a little stickier than a lot of us had hoped," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. "If that's the case the need for additional rate hikes and higher rates for longer is causing people to take some money out of the market, especially since the first six weeks of the year have been pretty strong."
The Dow Jones Industrial Average fell 431.2 points, or 1.26%, to 33,696.85, the S&P 500 lost 57.19 points, or 1.38%, to 4,090.41, and the Nasdaq Composite dropped 214.76 points, or 1.78%, to 11,855.83.
After Thursday's sell-off the Dow was still up 1.7% year-to-date while S&P was still up 6.5% and Nasdaq was up 13.3% so far in 2023.
MSCI's gauge of stocks across the globe shed 0.72% on the day but was still up 7.1% so far for 2023.
In Treasuries after the data, 10-year yields touched their highest level since Dec. 30 as investors bet that the Fed would hike rates higher for longer to tackle inflation.
Benchmark 10-year notes were last up 5.4 basis points to 3.861%, from 3.807% late on Wednesday.
In currencies, the dollar index was up 0.15% at 103.95, after earlier hitting a six-week high of 104.24.
But TraderX strategist Michael Brown said it was too soon to conclude that the economy would stay strong.
"The data is coming in strong and it is leading people to price out the 'Armageddon-recession' scenario that everyone was expecting at the start of the year, but I'm not sure one CPI and one retail sales print is enough for everyone to think all is fine and dandy with the economy once more," said Brown.
In commodities, U.S. crude oil prices settled slightly lower after trading in a narrow range as the market weighed mixed U.S. economic signals and prospects for a Chinese demand recovery with a build in U.S. crude stockpiles.
U.S. crude fell 0.1% to settle at $78.49 per barrel. Brent finished at $85.14, down 0.28% on the day.
Spot gold added 0.1% to $1,837.83 an ounce.
In the cryptocurrency world, bitcoin was higher, putting it on track for a third straight day of gains. It was last up 0.6% after rising as much as 3.86% during the day.