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Wall St. drops amid worries over North Korea test, rate outlook


U.S. stocks dropped on Friday, giving the S&P 500 its worst day since June as investor nervousness increased following a nuclear test by North Korea and Federal Reserve officials' comments lifted rate hike bets.

The CBOE Volatility index .VIX closed at its highest level since late June, while the S&P 500 index closed below its 50-day moving average for the first time also in about two months, a sign that further weakness may be ahead.

The equity selloff also came as the U.S. Treasury yield curve continues to steepen. Long-dated yields reached more than two-month highs, after reports suggested Japan is considering measures to cut short- to medium-term yields, while lifting those of long-term bonds.

Traditionally, September tends to be a month of lower returns for stocks, and traders said this year could be no exception given the abundance of uncertainties including the rate outlook and November's U.S. election.

"With worries about growth and what the Fed is going to do about rate hikes... It could be the start of a little bit of a pullback," especially after recent record high combined with low volatility, said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois.

North Korea conducted its fifth and biggest nuclear test on...