US markets finished lower on Wednesday as rising Treasury bond yields prompted a wave of selling after recent records.

"Now that the (first-quarter earnings) period is essentially over, inflation and interest rates are front of mind," said Sam Stovall, chief investment strategist at CFRA Research, noting that the Dow has pulled back after topping 40,000 earlier this month.

The Dow Jones Industrial Average fell 1.1 percent on the day to 38,441.

The S&P 500 declined 0.7 percent to 5,266, while the Nasdaq Composite Index dropped 0.6 percent to 16,920.

Analysts have attributed the rise in Treasury yields partly to commentary from US Federal Reserve officials warning that elevated inflation could keep interest rates high.

Market observers have also cited disappointing demand for US Treasury bonds as a factor.

On Wednesday, the Fed's latest "beige book" of economic conditions pointed to a somewhat gloomier outlook, although economic activity remained positive from early April to mid-May.

Among individual companies, Marathon Oil shot up 8.4 percent after it agreed to be acquired by ConocoPhillips in an all-stock transaction valued at US$22.5 billion.

ConocoPhillips declined 3.1 percent.

American Airlines sank 13.5 percent after it lowered its profit outlook, citing weaker demand and a troubled booking system upgrade. (AFP)