* Nasdaq drops more than 4%
* Twitter falls as short-seller Hindenburg flags risk to Musk deal
* Indexes: Dow down 2%, S&P 500 down 3.2%, Nasdaq down 4.3%
NEW YORK, May 9 (Reuters) - The S&P 500 ended below 4,000 for the first time since late March 2021 and the Nasdaq dropped more than 4% on Monday in a selloff led by mega-cap growth shares as investors grew more concerned about rising interest rates.
The Nasdaq closed at its lowest level since November 2020. Apple shares dropped 3.3% and were the biggest weight on the Nasdaq and the S&P 500. Microsoft Corp dropped 3.7% and Tesla Inc fell 9.1%.
Investors are worried about how aggressive the Federal Reserve will need to be to tame inflation. The U.S. central bank last week hiked interest rates by 50 basis points.
Benchmark 10-year U.S. Treasury yields hit their highest levels since November 2018 before easing on Monday.
"Markets are digesting the start of a return to a more normal monetary policy environment," said Kristina Hooper, chief global market strategist at Invesco in New York.
"Moving more aggressively (on rates) raises the specter of a recession, especially with all of these complications - high inflation, Ukraine war, COVID-related supply chain disruptions," she said.
Investors have also been worried about an economic slowdown in China following a recent rise in coronavirus cases.
The Dow Jones Industrial Average fell 653.67 points, or 1.99%, to 32,245.7, while the S&P 500 lost 132.1 points, or 3.20%, to 3,991.24, its lowest close since March 31, 2021.
The Nasdaq Composite dropped 521.41 points, or 4.29%, to 11,623.25.
The S&P 500 is now down 16.3% for the year so far.
Among the hardest hit in the recent selloff have been technology and growth stocks, whose valuations rely more heavily on future cash flows.
All S&P 500 sectors ended lower on Monday except for consumer staples, which rose 0.1%.
The energy sector fell 8.3% as oil prices dropped.
The S&P 500 growth index was down 3.9% on the day, while the S&P 500 value index fell 2.5%.
Twitter Inc shares eased more than 3% as Hindenburg Research took a short position on the social media company's stock, saying the company's $44 billon deal to sell itself to Elon Musk has a significant risk of getting repriced lower.
Volume on U.S. exchanges was 15.29 billion shares, compared with the 12.34 billion average for the full session over the last 20 trading days.
Declining issues outnumbered advancing ones on the NYSE by a 7.18-to-1 ratio; on Nasdaq, a 5.44-to-1 ratio favored decliners.
The S&P 500 posted 1 new 52-week highs and 73 new lows; the Nasdaq Composite recorded 13 new highs and 1,217 new lows.
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