Stocks Tumble on Fears of Fed Tapering; Nasdaq Down Over 1%

Stocks closed down nearly 1 percent in a volatile session after the minutes from the last Fed policy setting meeting suggested the central bank is divided on when it may start to pull back on its monetary stimulus.

The market had moved higher earlier in the session when Federal Reserve Chairman Ben Bernanke reiterated that tapering bond purchases will depend on an improvement in the economic data.

The Dow Jones Industrial Average fell 80.41 points, or 0.52 percent, to close at 15307.17. Cisco led the blue chips lower, while Pfizer and Home Depot closed higher.

The last time the Dow was up over 150 points at the session highs, but closed down for the day was March 16, 2009.

The S&P 500 lost 13.81 points, or 0.8 percent, to finish at 1655.35. The Nasdaq dropped 38.82 points, or 1.11 percent, to close at 3463.30. Both the Dow and S&P were up as much as 1 percent earlier in the session.

All 10 S&P sectors fell, with utilities and materials pacing the declines.

Fed Minutes Hint at Tapering

The Fed minutes noted that "a number of participants expressed willingness" to reduce QE as early as the June meeting if the economic data received by that time showed evidence of sufficiently strong and sustained growth. But officials differed about what evidence would be necessary and the likelihood of that outcome, the minutes said.

In his Congressional testimony earlier in the day, Bernanke said the central bank's "intention to maintain highly accommodative monetary policy as long as needed" and that any decision on scaling back bond purchases were possible in the next few meetings depending on an improvement in the jobs data.

Pimco's co-CIO Bill Gross told CNBC, "I think we're looking at a potential tapering in the next few months and probably around September."

(Read More: Fed Hawks, Doves Divided Over Improved Labor Market)

Last week, San Francisco Fed president John Williams suggested the central bank could begin hitting the brakes on its easing as early as this summer, sentiments that were echoed by Philadelphia Fed president Charles Plosser and Chicago's regional chief, Charles Evans.

But dovish comments from St.Louis Fed president James Bullard and New York Fed president William Dudley seemed to dampen expectations the Fed could pull back on its bond-buying soon.

JPMorgan Funds chief global strategist David Kelly, told CNBC the Fed should wind down its program, saying QE is too extreme. "The best thing for them to do right now is to talk about an exit strategy to gradually get people used to the idea that rates will go up," Kelly said. "That way people can go adjust away from some of the extremes that we're seeing in markets right now."

The next Fed policy meeting runs June 18-19.

In economic data, U.S. existing home sales data for April rose 0.6 percent to an annual rate of 4.97 million units, the highest level since November 2009.

Strength in Big Pharma

Pfizer said it will spin off its majority stake in animal health business Zoetis to shareholders.

Bristol-Myers was up sharply after Citigroup upgraded the stock to "buy."

Retail Earnings Weak

Lowe's reported quarterly earnings and revenue that missed analysts' expectations, with the company blaming softer sales on unseasonably cool, rainy weather.

Target, meanwhile, reported sales that missed Street forecasts due to the chilly weather.

Home builder Toll Brothers reported quarterly profit of 14 cents per share, seven cents above estimates, as it saw an increase in orders and higher average selling prices.

After the bell, the Street will be focused on earnings from Hewlett-Packard, L Brands and PetSmart.

—By CNBC's Justin Menza. Follow him on Twitter @JustinMenza.