By Anora Mahmudova and Sara Sjolin, MarketWatch

CBOE Volatility index spikes 17%

U.S. stocks dropped on Tuesday as a sharp increase in the dollar sent investors into havens such as Treasury bonds.

The dollar rallied on the back of the inflation data on Friday and continued its ascent on Tuesday following stronger economic data (http://www.marketwatch.com/storyno-meta-for-guid) that supported those that see an interest-rate hike later this year. Oil and gold prices tumbled on the dollar's move, while Treasurys rose, sending the yield on the 10-year note down 4 basis points to 2.19%. A spike in the CBOE Volatility index (VIX), which measures implied volatility on the S&P 500, suggests investors are increasingly nervous about a possible pullback.

The S&P 500 (SPX) fell 20 points, or 0.9%, lower at 2,106. The Dow Jones Industrial Average (DJI) dropped 180 points, or 1%, to 18,1052. The Nasdaq Composite (RIXF) dropped 56 points, or 1.1%, to 5,033.

U.S. markets were closed for Memorial Day on Monday.

Colin Cieszynski, chief market strategist at CMC Markets, said speculation that rate hikes can come sooner are back.

"The Federal Reserve is data-dependent and with all the weaker data during the winter, investors had previously written off rate hikes this summer, but stronger data is shifting those expectations," Cieszynski said.

Cieszynski also noted that seasonally the period between end of May and the next earnings season is usually weak for stock prices.

Positive readings on recent economic data, including a pick up in inflation and job gains, have stoked fears that an interest-rate hike may come sooner than anticipated, unnerving some investors. On Tuesday, a report on durable-goods orders showed signs of revival in business investment in April.

Also read: Signs of revival in business investment seen in April durable-goods report (http://www.marketwatch.com/story/signs-of-revival-in-business-investment-seen-in-april-durable-goods-report-2015-05-26)

U.S. house prices rose 0.9% in March to take the year-on-year advance to 5%, according to the S&P/Case-Shiller 20-city composite index (http://www.marketwatch.com/story/city-by-city-look-at-house-prices-as-san-francisco-surges-again-2015-05-26) released Tuesday. With seasonal adjustment, prices were up by 1%, the report said.

New-home sales climbed by more than expected, suggesting improvement in the housing market after sluggish winter months.

Separately, consumer confidence edged higher in May, also topping economists forecasts.

Fed speakers: Fed Vice Chairman Stanley Fischer speaks on "the Fed and the global economy" in Tel Aviv, Israel at 7:30 p.m. local time or 12:30 p.m. Eastern.

In a speech on Monday, Fischer said he sees the Fed's short-term rate at 3.25%-4% in three to four years (http://www.marketwatch.com/story/feds-fischer-sees-short-term-rate-at-325-4-in-three-to-four-years-2015-05-26).

Richmond Fed President Jeffrey Lacker, who is not a voting member of the Federal Open Market Committee this year, gives a speech on financial stability at Louisiana State University in Baton Rouge, La. at 8:10 p.m. Eastern.

The speeches come after Fed Chairwoman Janet Yellen on Friday warned that a rate hike is still in the cards for 2015.

Movers and shakers: Shares of Time Warner Cable Inc.(TWC) surged 4.4%, after Charter Communications Inc. (CCMMV) said it will buy the cable-TV company (http://www.marketwatch.com/story/charter-to-merge-with-time-warner-in-55-billion-deal-2015-05-26-61034117) for $55 billion in a cash-and-stock deal. Charter shares were up 1%.

Rival Cablevision Systems Corp. (CVC) and Comcast Corp. (CMCSA) also rose 2% and 1% respectively.

Cerulean Pharma Inc. (CERU) jumped 4% after the biotech company said the U.S. Food and Drug Administration has granted orphan drug designation to its CRLX101 drug, a treatment for ovarian cancer.

For more on the day's notable movers, read Movers & Shakers column (http://www.marketwatch.com/story/autozone-workday-tivo-earnings-in-focus-2015-05-25).

Other markets: European stock markets were mainly lower as investors continued to track developments in Greece's bailout negotiations (http://www.marketwatch.com/story/greece-wont-meet-imf-repayments-in-june-interior-minister-says-2015-05-24). The euro traded as low as $1.0884 on Tuesday, its lowest level since April 28, down from $1.0978 on Monday

Asian markets closed mixed (http://www.marketwatch.com/storyno-meta-for-guid), while oil (http://www.marketwatch.com/storyno-meta-for-guid)(CLN5) and metals prices were hit by the dollar rally.

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