U.S. stocks fell sharply on Tuesday as bond yields shot to their highest in five years, stoking fears that higher borrowing costs could cut into corporate profits and discourage takeovers.

Bond market investors have all but given up expectations for a Federal Reserve rate cut this year as the pace of economic activity strengthens, fueling concerns about inflation. That weighed on the financial and utility sectors, which are the most sensitive to higher interest rates.

A disappointing outlook from Texas Instruments compounded investors' concerns about the profit outlook. The chip maker's shares fell 2 percent and helped lead technology stocks lower.

Interest rates are clearly weighing heavily on the market, said Richard M. Parower, managing director at J&W Seligman in New York.

The market is selling off because a Fed rate cut is less likely and people are now starting to talk about rate increases.

The Dow Jones industrial average fell 129.95 points, or 0.97 percent, to end at 13,295.01. The Standard & Poor's 500 Index dropped 16.12 points, or 1.07 percent, to finish at 1,493.00. The Nasdaq Composite Index slid 22.38 points, or 0.87 percent, to close at 2,549.77.

The benchmark 10-year U.S. Treasury note dropped 23/32 in price, pushing its yield up to 5.267 percent. Earlier, the yield jumped to 5.27 percent, the highest level in five years and exceeding the fed funds rate target currently at 5.25 percent. For more see [US/]

Of the 90 stocks in the S&P financials sector 84 fell, with heavyweights Citigroup Inc. down 1.6 percent at $52.60 and JP Morgan Chase down 2.1 percent at $49.35.

Utility stocks sank, with the S&P utilities index down 1.5 percent. Stocks with high dividends, including utility companies' shares, lose some of their appeal when higher yields make bonds more competitive. Telecommunications company AT&T , also known for its high dividend, was the heaviest drag on the S&P 500. AT&T's stock dropped 2.6 percent to $39.08, its biggest decline in 3 months.

Texas Instruments shares lost 2.1 percent to $35.04.

Shares of other technology companies also dropped, with Google Inc. , the world's top provider of Web search services, among the top drags on the Nasdaq. Google shed 1.3 percent to $504.77.

Boeing shares slid 1.1 percent to $96.48 on the New York Stock Exchange.

A decline in oil prices put pressure on shares of energy companies such as Exxon Mobil Corp. . Exxon's shares fell 1.3 percent to $82, making it one of the heaviest drags on the S&P 500.

Shares of home builder Standard Pacific Corp. tumbled 4.6 percent to $18.96 a day after the company reported a 16 percent slide in April and May orders. On Tuesday, Citigroup cut its price target on the stock to $32 from $37.

The Dow Jones U.S. Home Construction Index lost 2.5 percent.

The session was choppy, with comments from former Fed chairman Alan Greenspan, who said he was not worried about Chinese selling of U.S. Treasury bonds. His remarks briefly sending the market into positive territory.

Trading was moderate on the NYSE, with about 1.61 billion shares changing hands, below last year's estimated daily average of 1.84 billion. In contrast, on the Nasdaq, about 2.10 billion shares traded, above last year's daily average of 2.02 billion.

Declining stocks outnumbered advancing ones by a ratio of more than 6 to 1 on the NYSE and by 3 to 1 on Nasdaq.