Wall Street reversed course to trade lower on Friday afternoon after hawkish comments from Federal Reserve Vice Chair Stanley Fischer raised the specter of a rate hike as soon as next month.
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Fischer's comments came shortly after Fed Chair Janet Yellen said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates.
Yellen said the economy was nearing the central bank's goals of maximum employment and price stability, but she maintained that future hikes should be "gradual."
Asked on CNBC whether people should get ready for a rate hike in September and another before the end of the year, Fischer said: "I think what the Chair said today was consistent with answering yes to both of your questions, but these are not things we know until we see the data."
Following the comments, traders raised the odds of a hike in September to 30 percent from the 21 percent-chance they priced in after Yellen's remarks, according to CME Group's FedWatch tool. The odds before Yellen spoke stood at 18 percent.
Nine of the 10 major S&P 500 indexes were lower. Financials , which stand to gain the most if rates are increased, fell the least. The defensive telecom, utilities and consumer staples sectors were the biggest losers.
"While they said the same thing, Fischer's comments were delivered in a more hawkish fashion than Yellen's," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management in Chicago.
At 12:31 p.m. ET (1631 GMT), the Dow Jones Industrial Average was down 78.21 points, or 0.42 percent, at 18,370.2.
The S&P 500 was down 6.5 points, or 0.3 percent, at 2,165.97 and the Nasdaq Composite was down 11.80 points, or 0.23 percent, at 5,200.41.
All the three indexes had risen as much as 0.7 percent after Yellen's comments.
Mirroring the market's swings, the CBOE Volatility index , known as Wall Street's "fear gauge," was trading at a 7-week high of 14.15, up 9.2 percent. It was earlier down as much as 7.4 percent.
In company news, Herbalife fell 4.7 percent to $59.04 after a report said Carl Icahn, the nutritional supplement maker's top shareholder, was looking to sell his stake.
Declining issues outnumbered advancing ones on the NYSE by 1,721 to 1,140. On the Nasdaq, 1,526 issues fell and 1,201 advanced.
The S&P 500 index showed 29 new 52-week highs and one new lows, while the Nasdaq recorded 108 new highs and 18 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D'Souza)