Treasury bond prices and the dollar also declined steeply, with the end of America's long boom in prospect. The Fed's Open Markets Committee isexpected to raise interest rates next Wednesday, with perhaps more increases to come in the summer.
By early afternoon the Dow Jones index was 180 points lower at 10,486.71 - below the psychological barrier of 10,500. Goodyear Tire & Rubber, a classic cyclical stock, issued a profits warning, and technology stocks were also weak.
The yield on the benchmark 30-year Treasury bond climbed to 6.19 per cent, a 19-month high. The dollar weakened against the euro, with the new currency regaining the $1.04 level.
The Fed chairman indicated earlier this month that interest rates could rise to control inflationary pressure. But some fear a rise in borrowing costs could send Wall Street into a nosedive. "Alan Greenspan wants to let the air out of the stockmarket balloon gently, but the only weapon he's got is a sharp pin," said Gerald Holtham at Norwich Union Investment Management.
Wall Street had one of its best weeks of the year last week as Mr Greenspan's comments were taken to mean interest rates would climb only a quarter point. But the strength of economic data is pointing to a series of rate rises instead.