US Stocks felt sharply as reports of big gains in the nation's overall economy and in new-home sales worsened investors' fears of inflation and higher interest rates.

On Wall Street, the Dow Jones industrial average dropped 64.73 points and closed at 5647.65. The blue chip index started the day lower, tried to rally in late morning but resumed falling, by early afternoon. It was down as much as 75 points in mid-afternoon before bouncing off the bottom.

Bonds started the day lower after the Commerce Department said the US Economy surged at a 4.8 per cent annual rate in the second quarter, the fastest in two years.

The report stirred fears that inflation is building in the economy, which could prompt the Federal Reserve to raise interest rates.

The NYSE's composite index fell 3.43 to 353.36, and the Standard and Poor's 500-stock index fell 7.42 to 657.39. The Nasdaq composite index fell 8.56 to 1145.32.