Slumping bond prices hit US stocks

The Dow Jones industrial average rose 78.07 to close on Friday at 9,864.94

The US stock market put its rally back on hold as investors grew worried about rising borrowing costs.

The Dow Jones industrial average fell nearly 175 points to erase most of a rally from Tuesday as a jump in government bond yields fanned worries that higher interest rates will sap strength from the economy before it has a chance to recover.

The Dow fell 173.47, or 2.1 %, to close on Wednesday at 8,300.02.

The broader Standard & Poor's 500 index fell 17.27, or 1.9 %, to 893.06, while the technology-laden Nasdaq composite index fell 19.35, or 1.1 %, to 1,731.08.

A steep drop in the price of the benchmark 10-year Treasury note pushed its yield up to 3.72 % from 3.55 % late on Tuesday.

That increase touched off fears that the US government will not be able to hold down interest rates long enough to allow the economy to recover.

Along with increasing borrowing costs for the government, rising yields on Treasury debt could hamper an economic recovery since they are used as benchmarks for certain consumer loans such as home mortgages. Higher rates on those kinds of loans could prolong a recovery in the battered housing market.

Federal Reserve Chairman Ben Bernanke has described early positive signs in the economy as "green shoots".

But Hank Herrmann, chief executive of Waddell & Reed, said: "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."