U.S. stocks declined as the 10-year Treasury yield surged to its highest point since 2007, driven by robust business activity and growing expectations of additional Federal Reserve interest rate hikes to combat persistent inflation. The S&P Global composite PMI Output Index rose to 58.4 in September, the highest since July 2021, with services leading and manufacturing output picking up sharply. Factory hiring rose at the fastest pace since February 2021, underscoring the Fed's rate hike and hawkish stance.

Traders now price in 73% odds of an October rate hike, up from 53% earlier, while Fed Governor Michael Barr indicated the central bank will likely need further hikes to bring down inflation. The benchmark 10-year yield jumped 8.7 basis points to 5.054%, the highest since 2007, as yields remain elevated on sticky inflation above the Fed's 2% target. Stocks fell across the board, with the S&P 500 down 0.53% and the Nasdaq Composite down 1.05%.

The dollar strengthened to multi-week highs versus major currencies, while oil prices rose on hopes for diplomatic talks to end the Iran conflict and ahead of a summit between US President Donald Trump and Chinese President Xi Jinping.