US stocks fell on Wednesday as the benchmark 10-year Treasury yield climbed to its highest level since 2007, after fresh data showed US business activity accelerated to a more-than-five-year high in September.

The S&P Global flash US Composite PMI Output Index, which tracks manufacturing and services activity, rose to 58.4 in September from 56.0 in August. The reading was the highest since July 2021 and was supported by a surge in new orders.

The stronger business activity data added to expectations that the Federal Reserve could raise interest rates again as inflation remains above the central bank’s 2% annual target.

The benchmark 10-year Treasury yield jumped 8.7 basis points to 5.054%, its highest level since 2007. The interest-rate-sensitive two-year Treasury yield rose 8.49 basis points to 4.862%, its highest since June 2024.

Fed funds futures traders were pricing in 73% odds of an October rate hike, up from 53% earlier.

Federal Reserve Governor Michael Barr said the central bank had taken an important step the previous week to ‘recalibrate’ short-term borrowing costs to bring down inflation and would likely need to deliver further rate hikes.

Stocks came under pressure as Treasury yields moved higher. The Dow Jones Industrial Average fell 0.18%, while the S&P 500 dropped 0.53%. The Nasdaq Composite declined 1.05%.

The pan-European STOXX 600 index fell 0.27%, while an MSCI index of global stocks declined 0.51% after four consecutive sessions of gains.

Adam Button, chief currency analyst at investingLive, said services continued to lead the economy, while manufacturing output picked up sharply, with factory hiring rising at its fastest pace since February 2021.

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