Wall Street falls as worries mount about US debt

US stocks have closed sharply lower as Treasury yields spiked on worries that United States government debt would swell by trillions of dollars if Congress passes President Donald Trump's proposed tax-cut bill.

All three major Wall Street indexes closed with their biggest daily losses in a month.

Small cap stocks also fell sharply, with the Russell 2000 index posting its biggest daily loss since April 10.

Longer-dated Treasury yields rose after the Treasury Department's $US16 billion ($A25 billion) sale of 20-year bonds met soft demand from investors.

The yield on benchmark US 10-year notes rose 10.8 basis points to 4.589 per cent.

During the session, the 10-year yield hit its highest since mid-February.

A Congressional committee set an unusual hearing as House Republicans sought to overcome internal divisions about proposed budget cuts, including to the Medicaid health program.

Nonpartisan analysts said the Republican bill could add between $US3 trillion and $US5 trillion to the federal government's $US36.2 trillion debt.

"There are any number of headlines, all of which have consequences if indeed they come to pass," said Michael Farr, chief executive officer at investment advisory firm Farr, Miller & Washington in Washington DC.

"Many of these things are threats that fade rather quickly and markets are trying to digest what's important or what's material or what's perhaps negotiating bluster on behalf of the administration."

The Dow Jones Industrial Average fell 816.80 points, or 1.91 per cent, to 41,860.44, the S&P 500 lost 95.85 points, or 1.61 per cent, to 5,844.61 and the Nasdaq Composite lost 270.07 points, or 1.41 per cent, to 18,872.64.

Ten of the 11 S&P 500 sectors fell, led by real estate, healthcare, financials, utilities, consumer discretionary and technology equities. Communication services stocks gained.

Google parent Alphabet rose 2.7 per cent while Nvidia lost 1.9 per cent, Apple fell 2.3 per cent and Tesla shed 2.7 per cent.

UnitedHealth Group dropped nearly 6.0 per cent after a Guardian report said the healthcare conglomerate secretly paid nursing homes thousands of dollars in bonuses to help reduce hospital transfers for ailing residents.

HSBC downgraded the stock to "reduce" from "hold".

Target fell 5.2 per cent after slashing its annual forecast due to a pullback in discretionary spending.

Wolfspeed plunged nearly 60 per cent following a report that the semiconductor supplier was preparing to file for bankruptcy within weeks.

The S&P 500 has climbed more than 17 per cent from its April lows, when Trump's reciprocal tariffs roiled global markets.

Morgan Stanley upgraded its stance on US equities to "overweight," saying the global economy was still expanding, albeit slowly, amid policy uncertainty.

Declining issues outnumbered advancers by a 5.82-to-1 ratio on the NYSE. There were 188 new highs and 104 new lows on the NYSE.

The S&P 500 posted 15 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 53 new highs and 92 new lows.

Volume on US exchanges was 19.39 billion shares, compared with the 17.5 billion average for the full session over the last 20 trading days.