Dow's worst day of the year; stocks wipe out 2015 gains

U.S. stocks declined sharply on Tuesday, with the S&P 500 and Dow industrials erasing gains for the year, as investors fretted about the impact of the strengthening U.S. dollar and the timing of interest rate hikes ahead by the Federal Reserve.

"The real story here is the U.S. dollar, with investors thinking worse-case scenario, that it makes our multinationals less competitive on the global market, which is putting downward pressures on commodity prices," Art Hogan, chief market strategist at the Wunderlich Securities, told CBS MoneyWatch.

He added, "The U.S. economy is adding more jobs, causing investors to think June liftoff," for the Fed to lift rates from historic lows.

In his final speech as president of the Fed Bank of Dallas, Richard Fisher late Monday said the Fed should start the process off slowly increasing rates ahead of the U.S. economy hitting full employment to avert setting off a recession.

In another sign of a steadily strengthening job market, the Labor Department on Tuesday reported job openings increased 2.5 percent to nearly 5 million in January, a 14-year high.

"It started last week with the strong jobs report putting pressure on the Federal Reserve to start raising rates this year; the problem the Fed has is the U.S. dollar is so strong, if they enter into a series of rate hikes, it's only going to make the U.S. dollar dollar stronger, and hurt our exports," said Bruce Bittles, chief investment strategist at RW Baird & Co. "The Fed is between a rock and a hard place."

"Take Apple (AAPL) out of the equation, in terms of earnings, they are likely to be down for the first half of the year," said Bittles, referring to the consumer technology maker, which is January posted the largest quarterly profit ever by a public company.

Other U.S. data on Tuesday had the Commerce Department reporting an unexpected increase in U.S. wholesale inventories in January as sales fell the most since 2009.

Tuesday's drop comes as the S&P 500 (SPX) entered its seventh year of a bull market.

Closing at or near session lows, the Dow Jones Industrial Average (DJI) declined 332.78 points, or 1.9 percent, to 17,662.94; the S&P 500 was off 35.27 points, or 1.7 percent, at 2,044.16, and the Nasdaq Composite (COMP) fell 82.64 points, or 1.7 percent, at 4,859.79.

Greece's debt issues also weighed on sentiment, with talks scheduled for Wednesday between Greek officials and international creditors, with euro zone ministers telling Greece it has little time to spare.

In China, the rate of inflation picked up steam last month and producer prices continued to fall, illustrating the pressure on policy makers to find additional means to bolster growth.

"China's inflation rate is a touch higher, which has people thinking China's central bank won't be as stimulative next month. And there's worry about Greece dragging its feet on reform," Hogan said.

The S&P 500 declined 1.6 percent last week after a better-than-expected monthly jobs report furthered thinking that the Fed would raise its benchmark rate in June. Central bankers hold their next two-day policy meeting on March 17.