Stocks fall as inflation hits 3-year high

Stocks tumbled Tuesday after Monday's rally as the strongest monthly reading on consumer inflation in three years offset a robust earnings report from home improvement retailer Home Depot and a solid reading on April housing starts.

At the 4 p.m. ET close, the Dow Jones industrial average ended down 181 points, or 1%. The Dow surged 175 points Monday as traders reacted positively to news that Warren Buffett's Berkshire Hathaway took a roughly $1 billion stake in iPhone maker Apple in the first quarter and continued gains in the oil patch.

The broader Standard & Poor's 500 stock index, which rallied 1% Monday, fell 0.9% and the technology-packed Nasdaq composite ended off 1.3%.

In good news on the earnings front, Home Depot (HD) helped offset fears that consumer spending was in retreat, a worry fanned last week by weak earnings reports from department store chain Macy's and apparel retailers like Nordstrom. The home improvement retailer topped Wall Street estimates on both the top line and bottom line, and raised its full-year profit guidance. Shares of Home Depot ended off 2.5% despite the strong profit report.

On the inflation front, consumers prices at the consumer level for items ranging from toilet tissue to gasoline rose 0.4% last month, slightly above the 0.3% estimate but its strongest monthly gain in more than three years.

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Inflation posts largest increase in three years

The tick higher in inflation, due in large part to rising prices at the gas pump, is likely to heat up debate as to whether cost pressures are on the rise, a trend that could prod the U.S. Federal Reserve to raise interest rates at an earlier date than Wall Street now has priced in. Heading into Tuesday's trading session, investors -- citing mixed U.S. economic data in recent weeks -- were placing very low odds on a Fed hike at its June meeting.

Wall Street was also digesting a slew of economic data. Builders broke ground on a seasonally adjusted 1.172 million units in April, boosting so-called housing starts up 6.6%.

Stock markets around the globe were mixed but mostly higher. In Asia, Japan's Nikkei 225 closed 1.1% higher. Stocks in Hong Kong rose 1.2%. And stocks in mainland China fell 0.3%.

European stocks were a mixed bag. The broad Stoxx Europe 600 was down 0.2%. Germany's DAX was off 0.7% and the CAC 40 in Paris was off 0.6%.