US STOCKS-Wall Street stocks tumble as worries mount about US debt

By Chibuike Oguh

NEW YORK, May 21 (Reuters) - U.S. stocks closed sharply lower on Wednesday as Treasury yields spiked on worries that government debt would swell by trillions of dollars if Congress passes U.S. 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 .RUT posting its biggest daily loss since April 10.

Longer-dated Treasury yields rose after soft demand from investors in a $16 billion sale of 20-year bonds by the Treasury Department. The yield on benchmark U.S. 10-year notes US10YT=RR rose 11.5 basis points to 4.597%. 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 $3 trillion and $5 trillion to the federal government's $36.2 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. "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."

According to preliminary data, the S&P 500 .SPX lost 96.25 points, or 1.62%, to end at 5,843.09 points, while the Nasdaq Composite .IXIC lost 269.49 points, or 1.41%, to 18,873.22. The Dow Jones Industrial Average .DJI fell 824.08 points, or 1.92%, to 41,856.74.

Google parent Alphabet GOOGL.O rose, while Nvidia NVDA.O, Apple AAPL.O and Tesla TSLA.O fell.

UnitedHealth Group UNH.N dropped 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 TGT.N fell after slashing its annual forecast due to a pullback in discretionary spending.

Wolfspeed WOLF.N plunged following a report that the semiconductor supplier was preparing to file for bankruptcy within weeks.

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