US STOCKS-Wall Street closes sharply lower on rate worries

(Updates to close)

By Kristina Cooke

NEW YORK, May 24 (Reuters) - U.S. stocks fell on Thursday, as interest-rate concerns spurred investors to lock in profits from the market's spring rally.

News that sales of new homes climbed at their fastest pace in 14 years signaled a slowdown in housing may have bottomed out, but it also put the Fed's cut in official rates further out on the horizon. A steady rise in bond yields has investors worried about higher borrowing costs.

Rate-sensitive utility stocks, such as Exelon (EXC.N: Quote, Profile, Research, Stock Buzz), dropped their most since February, as the yield on the 10-year Treasury note rose as high as 4.90 percent, its highest since January.

The Nasdaq fell 1.52 percent, dragged lower by Network Appliance Inc. (NTAP.O: Quote, Profile, Research, Stock Buzz) . The data storage company unexpectedly forecast a downturn in revenue, blaming a slowdown in U.S. technology spending. [ID:nN23347404]

"People are coming to grips with the idea that not only are there not going to be rate cuts any time soon, but if the 10-year Treasury (yield) goes much higher, then people are going to start talking about the Fed lifting rates again," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.

The market has been expecting an interest-rate cut to encourage economic growth later in the year.

The Dow Jones industrial average .DJI slid 84.52 points, or 0.62 percent, to end at 13,441.13, swinging about 200 points during the session. Earlier, the Dow had earlier rallied to a lifetime intraday high of 13,624.55.