Stocks rattled by rate woes

NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday morning as spiking Treasury bond yields underscored bets that the Federal Reserve might raise interest rates later this year, while Texas Instruments' forecast dragged on the tech sector.

The Dow Jones industrial average (down 42.99 to 13,381.97, Charts) lost 0.6 percent. The broader S&P 500 index (down 7.42 to 1,501.70, Charts) gave up 0.7 percent and the tech-driven Nasdaq composite (down 13.57 to 2,558.58, Charts) lost 0.7 percent.

The Russell 2000 (down 7.43 to 825.75, Charts) small-cap index slumped more than 1 percent.

Stocks ended mixed Monday, giving up most of the day's gains as investors eyed spiking bond yields at the start of a busy week for economic news.

The action in the bond market continued to drag on stocks Tuesday, although it was tempered somewhat by falling oil prices and upbeat earnings from Lehman Brothers.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 5.21 percent from 5.15 percent late Monday. Treasury prices and yields move in opposite directions.

Yields have been rising aggressively over the last week on bets that rising price pressures and signs that the economy is picking up mean the Federal Reserve will have to raise interest rates, perhaps later this year.

Such worries sent stocks tanking for three days in a row last week, with the major gauges all plunging around 3 percent, before staging a recovery at the end of last week.

However, analysts say that investors were looking for an excuse to retreat a bit after the run up stocks have had this year, and the renewed focus on inflation provided that catalyst.

Prior to last week's battering, the Dow, S&P 500 and Russell 2000 had all hit all-time highs, while the Nasdaq composite was at a more than 6-year high.

In corporate news, Lehman Brothers (up $2.41 to $78.09, Charts, Fortune 500) reported higher quarterly earnings that topped estimates Tuesday morning, due to higher investment banking revenue. Shares rose 2.5 percent.

On the downside, Texas Instruments (down $0.74 to $35.05, Charts, Fortune 500) narrowed its second-quarter revenue forecast late Monday to a level that could miss analysts' estimates. The chipmaker also narrowed its earnings forecast to a level that is in line with analysts' estimates. Shares fell 1.5 percent Tuesday.

Blue chip declines were broad-based, with 26 out of 30 Dow stocks falling, led by Boeing (down $0.65 to $96.90, Charts, Fortune 500), JP Morgan (down $0.28 to $50.15, Charts, Fortune 500) and Merck (down $0.47 to $50.59, Charts, Fortune 500).

In currency trading, the dollar rose versus the euro and the yen.

U.S. light crude oil for July delivery fell 54 cents to $65.43 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery fell $7.10 to $651.90 an ounce.