Wall Street's main indexes tumbled on Tuesday after a higher-than-expected consumer inflation reading pushed back market expectations of imminent interest rate cuts, driving US Treasury yields higher.

The Dow Jones Industrial Average posted its biggest one-day percentage drop in nearly 11 months, after a Labour Department report showed US consumer prices increased above forecasts in January amid a surge in the cost of shelter.

"Equities are in retreat mode following a still inflationary CPI report," said Terry Sandven, chief equity strategist at US Bank Wealth Management. "The higher for longer inflation is a setback for the Federal Reserve."

Markets have rallied this year on bets that the Fed would start trimming rates in May. The S&P 500 closed above 5,000 for the first time on Friday. The Dow is also trading near a record-high level, and on Monday the Nasdaq briefly surpassed its record closing high from November 2021.

Rate-sensitive megacaps like Microsoft, Alphabet , Amazon.com and Meta Platforms fell between 1.6 percent and 2.2 percent, as yields on US Treasury notes across the board spiked to two-month highs. Most chip stocks such as Micron Technology, Qualcomm and Broadcom also dropped.

"Many Federal Reserve governors have come out in the last couple of weeks and given various indications that the cuts expected by the market in the first half of the year may have been premature. Now the CPI data are certainly reaffirming that picture," said Bob Elliott, chief investment officer at Unlimited Funds.

The S&P 500 lost 1.37 percent, to end at 4,954 points, while the Nasdaq Composite lost 1.79 percent, to 15,660. The Dow Jones Industrial Average fell 1.36 percent, to 38,275.

Among top movers, JetBlue Airways soared 21.6 percent after activist investor Carl Icahn reported a 9.91 percent stake, adding that the carrier's stock is "undervalued."

Tripadvisor stock jumped 13.8 percent as the online travel agency formed a special committee to evaluate deal proposals. (Reuters)