Wall Street stocks fell on Tuesday after US President Donald Trump hardened his rhetoric on the fighting between Iran and Israel, sparking worries of a broadening conflict.

In social media posts, Trump appeared to demand Iran's "UNCONDITIONAL SURRENDER!" while hinting at a possible US intervention as the fighting moved into its fifth day.

"It's not going in the right direction," Art Hogan, chief market strategist of B Riley Wealth, said of Tuesday's tone after markets had advanced on Monday on hopes the conflict was contained.

The Dow Jones finished down 0.7 percent at 42,215.

The S&P 500 dropped 0.8 percent to 5,982, while the Nasdaq shed 0.9 percent to 19,521.

Anxiety about Iran and Israel has emerged as the market's focal point at a time when investors are also watching the Federal Reserve, which opened a two-day monetary policy meeting.

The Fed is expected to keep interest rates steady as it eschews interest rate cuts for now while monitoring the effects of Trump's tariffs on inflation.

On Wednesday, the Fed is also due to release its latest economic projections on growth, unemployment and inflation.

Markets digested weaker than expected US economic data. Overall US retail sales fell in May by 0.9 percent from April to US$715.4 billion, figures that suggested a pullback from April's surge in buying to beat out tariffs.

While 10 of 11 sectors in the S&P 500 retreated, the exception was energy, which was buoyed by higher oil prices.

Defence-related stocks were another gainer, with Lockheed Martin winning 2.6 percent and Northrop Grumman 1.2 percent. (AFP)