By Sruthi Shankar

 

(Reuters) - U.S. stocks fell sharply on Tuesday after Federal Reserve Chairman Jerome Powell's comments on strengthening economy and inflation boosted bets the central bank would squeeze in a fourth rate hike this year.

 

In his prepared remarks, Powell had hinted that the central bank would stick to its current path of gradual rate hikes, but his comments during a congressional testimony that recent data increased his confidence in rising inflation spooked the market.

 

The benchmark U.S. 10-year Treasury yields <US10YT=RR> rose to a session high of 2.919 percent.

 

"The fed fund futures are pricing in more of a chance that we will see three or four rate hikes. But (the Fed) is still going to be data dependent," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

Powell's first semi-annual economic testimony as Fed chief before the U.S. Congress comes at a sensitive time for the market, which has swayed wildly in recent weeks on inflation worries.

"Both stocks and bonds are reacting to the testimony that the Fed isn't going to be deterred from its agenda based on short-term volatility in stocks," said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in New York.

The CBOE Volatility index <.VIX>, better known as Wall Street's fear gauge, jumped to 17.36 points, posting it biggest gain in more than two weeks.

At 12:30 p.m. ET, the Dow Jones Industrial Average <.DJI> was down 0.42 percent at 25,601.84. The S&P 500 <.SPX> fell 0.63 percent to 2,761.95 and the Nasdaq Composite <.IXIC> dropped 0.84 percent to 7,359.46.

Comcast <CMCSA.O> fell 6.3 percent after the U.S. cable giant offered to buy Sky <SKYB.L> for $31 billion in an unsolicited approach, taking on Rupert Murdoch's Fox and Bob Iger's Walt Disney in the battle for Europe's biggest pay-TV group.

The stock was the biggest drag on the S&P consumer discretionary <.SPLRCD>, which fell 1.46 percent. Disney <DIS.N> dropped 4 percent and Twenty-First Century Fox <FOXA.O> 2.6 percent following the news.

Macy's <M.N> rose 4.6 percent after reporting higher-than-expected same-store sales growth for the fourth quarter.

Declining issues outnumbered advancers on the NYSE by 2,114 to 767. On the Nasdaq, 1,995 issues fell and 814 advanced.

(Additional reporting by Parikshit Mishra in Bengaluru; Editing by Anil D'Silva)