US stocks hit by bond sell-off and Greece worries

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(Close): US markets fell on Tuesday as a spike in returns on government bonds rattled investors.

Wall Street nearly clawed back all the way from an early slump that dragged the Dow Jones down as much as 180 points in the first half-hour of trading.

The Dow ended just 36 points, or 0.2%, lower at 18,068 points.

The S&P 500 lost 6.2 points, or 0.3%, to 2,099, while the Nasdaq dropped 0.4% to 4,976.

The sell-off in government bonds, a trend partly blamed on rising inflation expectations, has sent yields - which move inversely to bond prices - higher.

The yield on the 10-year Treasury bond rose as high as 2.36%. The selling eased by late afternoon and the yield fell to 2.25%, down from 2.28% late Monday. The yield was below 2% as recently as 28 April.

The yield on the 10-year German government bond rose to 0.67% from 0.61% the day before. It traded as low as 0.08% last month.

"Bonds had been at such lofty prices that a sell-off was somewhat expected," said Chris Gaffney, president of EverBank World Markets.

Investors also had their eye on the latest batch of corporate results and some headline-grabbing deals.

Verizon agreed to buy AOL for about $4.4bn - a 15% premium to its closing price on Monday. Shares in AOL jumped 18.6% to $50.52, while Verizon fell 0.4% to $49.62.

The lack of progress in the Greek debt crisis was also unsettling.

It emerged on Tuesday that Greece had used its emergency reserves at the IMF to make the latest €750m (£538m) payment to the Fund.