NEW YORK — The stock market put its rally back on hold Wednesday as investors grew worried about rising borrowing costs.
The Dow Jones industrial average fell nearly 175 points, erasing most of a rally from the day before as a jump in government bond yields fanned worries that higher interest rates will sap strength from the economy.
A steep drop in the price of the benchmark 10-year Treasury note pushed its yield to 3.72 percent, up from 3.55 percent late Tuesday and to the highest level since November.
Along with increasing borrowing costs for the government, rising yields on Treasury debt could hamper an economic recovery because they are used as benchmarks for home mortgages and other kinds of loans. Higher mortgage rates could delay a recovery in the battered housing market.
“The equity market is getting worried about the ‘green shoots.’ I think the deer have nipped off a few, and I think a few turned out to be weeds,” said Hank Herrmann, chief executive of Waddell & Reed, referring to early positive signs in the economy that Federal Reserve Chairman Ben Bernanke has called “green shoots.”
Investors are becoming concerned that even strong demand at times for government debt isn’t leading to improvements in Treasury prices.
“Stocks are following bonds,” said John Brady, senior vice president of global interest-rate products at MF Global. “Will the economy grow and expand vigorously in the face of sustained higher interest rates?”
The Dow lost ground for the fifth time in six days, falling 173.47, or 2.1 percent, to 8,300.02 after rising 196 points Tuesday.
The Standard & Poor’s 500 index fell 17.27, or 1.9 percent, to 893.06, and the technology-laden Nasdaq composite index fell 19.35, or 1.1 percent, to 1,731.08.
On Tuesday, stocks soared after an upbeat reading on consumer confidence fueled hopes for an economic rebound later this year.
The Dow is still 26.8 percent above the lows it reached in early March but 41.4 percent below the record high it hit in October 2007.
