The Dow Jones industrial average finished with a loss of 424.56 points, or 1.7 percent, to 24,024.13. Britain's FTSE 100 rose 0.3 percent to 7,421. In the MSCI All Country World Index, cyclical stocks which tend to benefit as interest rates rise - like banks and companies selling discretionary consumer items - are roughly flat this year.
The yield rose as high as 2.95 percent in February, before retreating into a range for the past two months.
MISPRINT: Alphabet slid 4.6 percent to $1,024.89 after the company said ad revenue climbed, but expenses also rose. It reported strong digital ad sales and an accounting adjustment.
3M, which makes Post-it notes and industrial coatings and ceramics, shed 6.7 percent to $201.47 after cutting its annual forecast. Defense contractor Lockheed Martin sank 5.9 percent to $337.49 and Boeing lost 2.3 percent to $330.91.
When rates rise, that will also typically push the local currency higher as money flows from overseas in to take advantage of the higher yield. That helped energy companies finish higher. It jumped in early trading but later fell 6.2 percent.
The U.S. -led bond sell-off came on a day when oil prices topped $75 a barrel to touch their highest since November 2014, supported by OPEC-led production cuts, strong demand and the prospect of renewed U.S. sanctions on Iran. The yield on the 10-year Treasury note stayed at 2.98 percent, matching Monday's close. They surged in the first two months of the year, but pared that advance last month, leading some strategists to ponder whether 2018 might echo 2017, when optimism on the economy led yields to peak early in the year.
Low interest rates have played an important role in the economic recovery of the last decade, and the yield on the 10-year note is a benchmark for many kinds of interest rates including mortgages.
Many investors see 3% as a healthy level for 10-year yields given solid growth and rising inflation, and don't expect a violent spillover into other markets.
Since the global financial crisis in 2008-09, a combination of low inflation expectations and a bond-buying program by the Fed have helped keep bond yields low. JPMorgan estimates the 10-year yield will end 2018 at 3.15 percent, the same as the median forecast of 56 analysts surveyed by Bloomberg.
Shire has rallied in the wake of Takeda's earlier offers, which Shire said weren't good enough. That pushed stocks higher by making bonds less appealing by comparison.
"We haven't been at a seven-year high in a long time", Bianco said in a telephone interview.
"The euro seems to be on cruise control, trading sideways, although we do believe it is going to continue its march higher", said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in NY. The Stoxx Europe 600 Index pared an increase as traders assessed a mixed bag of corporate results, while USA equity futures posted a more solid jump. In the technology industry, electronics manufacturer Sanmina-ICU jumped 18.1 percent to $32.70.
CURRENCIES: The dollar edged up to 108.67 yen from 108.65 yen. The euro rose to $1.2216 from $1.2205.
Benchmark U.S. crude oil shed 1.4 percent to $67.70 a barrel in NY. Brent crude, used to price global oils, gained 0 cents to $74.91 per barrel in London.
The weaker yen boosted Japanese exporters, which helped the Nikkei to end 0.9 percent higher.